Here’s a quick way: Impose and/or Raise fees. Hmm? Are those pitchfork-wielding mobs at your branches? Angry account holders trolling your Facebook page?
Was it something I said?
So maybe that’s not the best method to increase checking account revenues. Let’s get real.
Stepping into our time machine of financial institution wisdom (it’s not quite a DeLorean, but it’s close), the checking account was the starting point for establishing a relationship with an account holder. You called it “sticky.”
The thinking was that once the account holder had a checking account, upselling on other services became easier. In addition, once the account holder made your banking platform “their own” (by adding all their bill pay accounts, payroll, direct deposit, etc.), it would be a pain to “unwind” and switch to another institution.
Today, traditional checking accounts are a commodity.
Technology now enables simple account (and institution) switching, meaning, the stickiness is gone. Just about every financial institution, both online and brick-and-mortar, offers a personal checking account. Like yours, they have comprehensive online banking and mobile apps. And the emerging fintechs (which manage way more transactions than you’d expect) do all this, too. PayPal has checking (though it’s not for everyone…yet). Simple offers a mobile-first debit card account. Sounds, dare I say it, simple.
Does Your Existing Checking Account Generate Revenue?
It’s hard to generate revenue with a traditional checking account. Typically, making money comes from unit price times volume. Therefore, increase the number of accounts, revenues go up. But recall, checking is a commodity. What’s your margin? Not great, right? So what do you do?
- Develop a new value proposition.
Ones that excite your staff. Ones that make them want to rally around. The following are seven ways you can increase your checking account revenue (while keeping account holders and staff happy!):
1. Interchange Fees
Encourage debit card usage over paper checks. Why? Two big reasons:
- Clearing checks costs money
- Debit card swipes make money
By virtue of interchange fees, this income can amount to between 1-2% of the purchase price. For example, $1000 of bill payments and retail purchases can generate nearly $20 monthly in revenue. Consider setting up a contest, or an ongoing Rewards program (see Section 2) to encourage usage.
Of course, you’ll want to make sure card holders use the appropriate payment method at point of sale. For some, PIN transactions are ideal. However, for maximizing interchange fees, encourage payments made as “credit” (most recognize these as signature transactions, despite the signature requirement ending last year for all major providers).
Plus, your account holders (and us!) will appreciate saving that check paper and sparing the trees.
2. Relationship Pricing (Rewards)
For the second way to increase checking account revenue, let’s start with an easy 2-step task:
- Add up all account holders with only a single account at your institution, then
- Check average balance on each of these accounts
Impressed? Chances are, these aren’t your most active account holders, nor are they moving funds in and out of their checking accounts with any regularity. Long story short, you are losing money with this account. And if it’s free, you’re recouping nothing.
Relationship pricing is a way to address the challenge of unengaged card holders. By design, it encourages “bundling” of other services to earn a variety of perks. It could be an increased interest rate on their linked savings account. Or perhaps a discount on auto or personal loans.
Some institutions provide fun rewards and social media campaigns as part of this engagement. Relationship pricing or rewards programs is a valuable way to keep account holders close.
While this strategy may not directly increase revenue for the checking portfolio (though it will encourage more debit card swipes), it spreads expenses, while boosting usage of other profitable services.
3. Value-Added Checking
People love value. Having it as part of their checking account is just bonus for everyone. We discussed what Value-Added Checking is in a previous article. We would encourage you to get the full story so you can best determine if this type of account is right for your institution.
Up to speed on Value-Added Checking? Great! To review, such an account provides:
- Benefits to the account holder (and their family) of real value
- Time and money-saving add-ons
- Compensation for when bad things happen
- Your checking account with all its bells and whistles
…all for a low monthly fee.
By partnering with a Value-Added Checking provider, your institution benefits from their marketing and training experience. Typical results show geometrically increased fee income through conversion of 80% of Free Checking account holders.
4. Customer Engagement
Connect with your customers. Make them feel appreciated. Yeah, it seems like a no-brainer. Yet, surveys including a recent survey from the Financial Brand of account holders in all forms of financial institutions indicate that “they do not feel the love.” Their relationship with the institution? From time to time, they receive notices on new fees or privacy regulations. Just like reconnecting with an old friend.
Consider when and why you reach out to customers. Do any of these communications highlight, “what’s in it for them” or “we thought this might be of interest”? If not, there are opportunities missed.
For example, does your institution have checking accounts that are more profitable for you while also being a better fit for certain account holders? Share this valuable news!
If your institution isn’t doing any proactive engagement, you’re not alone. We often see this occur in institutions which avoid a “sales culture.”
Of course, pushing products account holders don’t need nor want is in no one’s best interests. That’s why it’s important to share what makes sense for each person. If you have a checking account which lets someone save 0.25% on their auto loan, yet no one shares this with them, might your customer be rightly upset? Same with any other value-added product, service, or add-on available at your financial institution. Why have products if no one is willing to share them with account holders?
So share what you have to offer! The worst thing that can happen is your customer says, “no, thanks.”
Engaging your customers produces opportunities at a low cost of time, effort, and expense. Get talking and make it happen!
If your account holders keep their money and business with you, there’s a chance they like what you offer. Sure, the old “sticky” challenge affects some, but for the most part, satisfaction determines customer activity. That means the majority of your account holders are happy with your staff or service or both. I bet they each know at least one person. Nope, no qualifier. Just “one person.” Because that’s all it takes to get a referral.
Oh, and for you to ask (and reward) them for doing so!
Referrals are opportunities waiting to be tapped. How much does it cost to acquire a customer? On average, it’s $200-$400 per new account holder. We don’t know if they’ll be engaged, or even profitable. Obviously, there’s a better way.
Most people give word of mouth and social media the strongest importance in purchasing decisions. It’s also a lot cheaper than a coordinated advertising campaign. If only you had a group who could share this feedback…oh wait, you do! Your existing customers!
They stay because you do something useful. Some even love the experience and would jump at the chance to tell their friends and family…with the right incentive. It doesn’t necessarily have to be financial, either!
At a conference, I listened to a credit union marketing executive present their referral and rewards program. Part of it featured a social media campaign encouraging their members to share videos of why they loved their credit union (and its rewards programs), while holding a branded sign with their name and a featured hashtag. The credit union asked them why they enjoy being a member. Members eagerly participated and then shared these videos with their own friends and family. And why not? They’re famous! Meanwhile, the credit union gained immense social exposure, credibility, and built-in referrals.
You can also use the old-fashioned financial incentives. They work, too! Consider a rewards program using cash, gift cards, or your card service reward points to encourage supporters to spread the word. Of course, bring the new account holder into the celebration by rewarding them for joining, getting that relationship started on the right path.
One final note, since we are discussing ways to increase the profitability of your institution, ensure whatever referral rewards you use guide customers into appropriate and profitable accounts.
6. Fee Forgiveness
Earn more through refunds. Isn’t that an oxymoron, like jumbo shrimp or something? Turns out, fee forgiveness is a great way to differentiate, while delivering a bit of unexpected joy to your customers.
Along with that differentiation, expect to build loyalty and a pretty darn cool reason for account holders to refer your services (see Section 5).
So is this some “pie-in-the-sky” idea or can we see it in action? Turns out, a little financial institution called Discover announced the First Fee Forgiveness program in May 2018. Each year, the bank automatically waives the first fee incurred on certain deposit accounts.
That bears repeating: Automatic fee waiving. This is a software solution, not a staff time one. Their customer-facing team gets to share good news, without worrying about the labor of entering accounts to erase fees (and then making sure it is an eligible fee, and that it was the first one of the year, etc.).
Here are the fees Discover waives:
- Insufficient funds: $30 for overdrawing an account
- Stop payment: $15 for requesting a stop payment on a Discover check
- Excessive withdrawal: $15 for exceeding six withdrawals from a savings or Money Market account in one month
- Money market minimum balance: $10 if a Money Market account balance dips below $2,500
How many of those fees caught account holders in the past? Life is unpredictable: If something happens and the Money Market account needs a withdrawal, then that’s what they do. Whether or not they remembered the fee, they had little choice. Seeing your financial institution automatically waive your fee (without even doing anything!) brings a massive feel-good sensation. “I chose the right account,” is your account holders mantra. .
There is another opportunity for fee forgiveness, and it’s in support of Financial Literacy. More on that in the next section.
7. Financial Literacy
According to a study by FINRA, nearly ⅔ of all Americans cannot pass a basic literacy test. An online quiz by Filene (which you can take as well) had similar results. The financial knowledge which may seem natural to you is anything but for the vast majority of the population. That includes your members, account holders, and customers. And you can do something about it. While building loyalty, engagement, and, as a result, revenues! When it comes to financial education, the benefits for banks and credit unions are huge. But don’t take our word for it…
“At a time when competition in retail banking is fierce, targeted financial education programs can open new roads into untapped populations, such as the immigrant and underbanked markets. In addition, financial education programs can also create goodwill at the community level and strengthen relationships with local customers and community partners. In some cases, banks can also receive Community Reinvestment Act credit for providing financial education to low- and moderate-income individuals.”
Beyond government support, helping account holders better understand the effects of their savings and spending is just good business. Someone paying fees all the time isn’t a happy customer. Nor will they refer your services to friends and family. However, that’s the exact profile of the average account holder who supports your checking program. One alternate strategy is to shift the costs to those who do want to pay through a Value-Added Checking account.
This may offer benefits, though it does little to help improve the financial literacy of your account holders. For this, there are a number of online courses, one of which we operate ourselves. But how many account holders will take the courses for nothing in return?
We think there is a solution to this challenge: Financial Education combined with Fee Forgiveness.
How does it work?
- Financial institution signs up with a financial literacy platform and offers it for free to all account holders.
– Few go out of their way to take it.
- Upon receiving a fee, the account holder is guided to the financial education course with a promise of waiving the fee upon completion (our recommendation is that the course should take no more than an hour).
– Now the course is popular and becomes a differentiator for the institution.
- Financial literacy improves amongst your account holders, money savings happens immediately, and the institution benefits from the “good vibes” of their unique approach to learning and saving.
In the future, customers who better understand why they receive fees may reduce their exposure. This could mean a loss of fee income. However, when combined with the first 5 sections of this article, it becomes a net benefit for the institution. We believe a more educated populace is good for everyone. In fact, we built an online financial literacy platform for financial institutions to share freely with their account holders.
Whew, that’s a lot of strategies! Let’s do a quick roundup, then we have a suggestion for what to do next.
- Interchange Fees – The more your card holders spend using your card, the more you make.
- Relationship Pricing (Rewards Program) – More services, more activity, more rewards. And more loyalty.
- Value-Added Checking – Deliver massive value while generating ongoing income.
- Customer Engagement – Ensure communications go beyond automated notices. Make them feel valued!
- Referrals – Encourage account holders to share with friends and family. Then reward ’em!
- Fee Forgiveness – We all “oops” from time to time. A forgiven fee goes a long way.
- Financial Literacy – A more educated person can make smarter financial decisions…and better embrace your services!
We help credit unions and community banks achieve their revenue goals through a variety of services. Value-Added Checking through a program called Secure Checking happens to be one of those. In place at over 600 financial institutions, it is one strategy to help increase checking account revenues. It might be a fit for your institution. We would be happy to discuss.
Want to learn more about enhancing your institution’s checking? Feel free to read these articles:
- What is Value-Added Checking and What are the Benefits?
- What are the Costs of Value-Added Checking?
- Value-Added Checking Case Studies: Changing from Free to Fee
Ready for a web-meeting? Schedule here.
Blogger. Speaker. Part-time Jedi.
Focused on helping your bank or credit union grow in the face of emerging challenges.