The New Checking Account Paradigm: Staying Profitable in Today's Competitive Environment


The staid checking account has come a long way in just the past few years. Remote deposit capture, mobile banking, social payments, prepaid debit cards and other new products are transforming how consumers use their checking accounts. To ensure your checking account options are enticing enough to attract and retain consumers – while maintaining profitability – it's time to embrace the new checking account paradigm.

With many nonbank providers offering prepaid and mobile accounts, financial institutions are grappling with how to position or reposition product lines to remain viable in today's competitive checking account environment. The Point talked to Fabio Biasella, vice president of strategic thought leadership for Raddon, Fiserv, about new research on checking demand and the growing influence of nonbank alternatives.

What are the current trends in checking usage?
The number of checks written is down by more than half in the last decade, while at the same time prepaid cards have grown by 15.8 percent, according to new National Consumer Research from Raddon. Half of all younger consumers use one of the six largest U.S. banks as their primary financial institutions (PFI), while older generations are least likely to use major bank as their PFIs. Forty-four percent of millennials view mobile banking as a checking account value driver, compared to just 13 percent of baby boomers.

Federal Reserve Study Trends in Debit Card, Credit Card, ACH, Checks and Prepaid Card PaymentsSource: 2013 Federal Reserve Payments Study
Source: Raddon Financial Group, National Consumer Research - Spring 2014

 

Why has checking account profitability eroded?
Consumer behaviors have changed and competitive forces have emerged. Consumers expect anytime, anywhere access to funds and account information, which has led to an outlay of resources for the development of technology, including digital products and services. Nonbank competitors are using this same technology to break away customers and revenue from financial institutions. Is your checking product line profitable or is it a loss leader? The answer will inform your financial institution's product design and cross-selling strategy.

Checking account profitability will probably never increase again. Instead, we're in an era where financial institutions need to manage the loss and use the behaviors inside the account to develop other parts of the banking relationship.

How can data analytics impact the profitability of checking accounts?
Think of a checking account as a pool of behaviors – a record of how a consumer pays for things. There's enormous untapped value in understanding those behaviors in order to modify your financial institution's approach to customer relationships. Extending benefits based on how a consumer uses an account builds strong relationships and increases cross-selling opportunities for relevant products and services.

Financial institutions can also use customer payment patterns to scope the prevalence of nonbank alternatives. Millennials and credit-driven consumers are significantly more likely to bank with an alternative provider. Use incentives and rewards to entice these consumers – often some of the most valuable accounts – to continue to bank with your financial institution.

How can checking accounts remain viable and profitable?
Review the design of your checking product line to determine if the features align with consumers' payment behaviors. Begin by making sure you're rewarding behaviors to ensure income streams stay with your financial institution. If a customer or member is using an alternative financial provider, for example, offer an incentive to use a debit or credit card to make those payments instead.

Checking accounts are not an undifferentiated product; free checking for everyone should no longer be an option. Financial institutions should redesign their checking menu around how consumers live and work – and their profitable behaviors – instead of focusing on a set of features. Deploy the technology that consumers expect, but do it in a manner that allows your financial institution to protect the relationship and provide incentives based on how people pay for things.

There's a battle being fought for primary checking accounts. If your bank or credit union isn't incenting or rewarding consumers who choose your financial institution, you're leaving that opportunity for someone else.

Interested in learning more about current trends in checking accounts? Attend The New Checking Account Paradigm, Wednesday, October 7 at 2:30 p.m. at Fiserv Forum 2015.

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