What are the Costs of Value-Added Checking?

Clay Figure Among Money Signs

Simple, the monthly amount you decide to charge! Ok, so that’s not what you meant. Fair enough. In reality, it’s a great question which raises many others. Let’s dive in together to help you learn about the costs of Value-Added Checking for your institution.

On the surface, it seems an easy answer. One that Siri, Alexa, or Google Assistant should have no trouble answering. In fact, I’ll ask right now!

“Alexa, how much will Value-Added Checking cost my financial institution?”

  • “Hmm, I’m not sure.”

She wasn’t much help. What about Siri?

“Hey Siri, how much will Value-Added Checking cost my financial institution?”

  • “Ok, I found something on the web for ‘how much will value-added institution.’ Take a look.”

Um, Siri, that…wasn’t…even…close.

I’m not even going to waste your time asking any other assistants. It just shows how hard it can be to learn about pricing for B2B items. Definitely nothing like finding a good price on that new TV, car, or the trendy pair of shoes you’ve been eyeing.

Is B2B Pricing Some Big Secret?

When it comes to B2B products and services, prices are as well-protected from potential buyers as passwords (likely more so).

Why? Are they trying to keep it secret? Surely not from you. Maybe from competitors? Do those companies only believe in price-transparency during sales calls?

You're Dead to Me - Kevin O'LearyThat’s just silly. Consider Shark Tank. What happens when the people pitching aren’t transparent with their costs, pricing, and margins? Mr. Wonderful shoos them off with his quip, “You are dead to me.”

We know pricing is a major factor in your decision-making process, perhaps especially when those costs are passed on to your account holders. We understand. You don’t want to waste any time. And we already established that neither Siri nor Alexa are any help here.

Since finding pricing on something like Value-Added Checking seems to be hard-to-find, we’re going to make it easy. Right here. Right now.

Menu Pricing

More than likely, your institution uses menu pricing on at least one other product line. However, if this term is unfamiliar to you, imagine going to a restaurant. The waiter presents you with a menu. It organizes their choices, accompanied by pricing for each. Your bill reflects only what you ordered.

Menu pricing works the same for your financial institution. It allows you to pick-and-choose the products/services and pay only for those.

For Value-Added Checking, your “menu” may include account holder benefits such as:

  • Identity Theft Protection
  • Accidental Cell Phone Damage Insurance
  • AD&D insurance
  • Roadside Assistance
  • Shopping Rewards/Discounts
  • Vision Plan
  • Dental Plan
  • Buyer’s Protection

Each of these options carries with it a certain cost. To keep it simple for your account holders, you will determine the bundle ahead of time, so they have a single choice: Value-Added Checking or not.

Several factors determine the pricing beyond what their fixed cost to the provider:

  1. Opt-out or Opt-in
  2. Marketing Option
  3. Benefit “Bundle”
  4. Staff Training

A closer look at each helps us better understand the relationship between Cost and ROI.

  1. Much of this article will discuss the ups and downs to these differing approaches. In the former, the feature is active unless the account holders act. In the latter, the account holder must take an action to subscribe. Our research found Value-Added Checking providers see far higher uptake (and account holder satisfaction) with the Opt-out approach.

Thus, products offered as Opt-out see lower pricing per account, since you are essentially receiving a quantity discount through a blanket purchase (based on number of eligible accounts).

Here’s a comparison to help illuminate: Consider your free $1000 AD&D. Everyone just gets it, automatically. Therefore, it has a much lower per $1000 cost to you than the supplemental insurance offered as an option. Same idea here.Blue Mail Envelope Icon

  1. Account holder communication of these new benefits plays an important part in the pricing. Will your institution be responsible for the marketing? Even if that includes expensive mailing(s) to account holders? Will the Value-Added Checking company take on this project (and expense)? We talk more about what to ask and consider below.
  2. Which benefits will you offer? Most Value-Added Checking providers know what works best and will serve as a guide to ensure the benefit package you build meets your budget, cost to account holders, design, and performance goals.
  3. Staff excitement creates account holder excitement (and engagement)! Of course, for them to understand why it’s so cool, they have to learn about it. Ensure staff training is built-in to the pricing and look for references on how successful it was for other clients. As you know, your staff can make or break many initiatives. It’s essential to have their support and buy-in!

One final point: The level of training may be determined by the offerings you choose; confirm all these details with your chosen Value-Added Checking provider.

Pricing

The question you came to get answered: What does Value-Added Checking cost?

As we brought up earlier, each “menu item” benefit has a set bulk-rate price which can vary depending on the issuer and the number of potential account holders and enrollment process.

The monthly price range to the institution for most benefits is between $0.10 and $1.00.

Naturally, the premium benefits, such as ID Theft Monitoring/Restoration and Accidental Cell Phone Damage Insurance, occupy the higher side. However, they also convey the most perceived value to your account and are important to include.Costs on Dollar Pile

Recall that many people pay upwards of $30 per month, per device, for cell phone damage protection from their carrier. And ID Theft Monitoring & Recovery can reach similar prices. Even with your modest markup, you will be offering tremendous value to account holders.

One Value-Added Checking provider shared their standard benefit mix pricing with us for the purposes of this article. With ID Theft Monitoring/Restoration, Cell Phone Insurance, and several other health and savings benefits, they have a monthly cost between $1.70 and $1.80. To achieve these low rates, they offer only Opt-out accounts, which ensures the percent of customers embracing the Value-Added account is in the 80% range.

So what does the financial institution charge? According to one provider’s case studies, their institution clients charge account holders between $2.95 and $8.95 per month.

Of course, the price you pay is only one piece of the question. You want to know the typical Return on Investment.

  • Does Value-Added Checking make the institution money?

And because it’s partially intended to retain and attract checking accounts, one other question endures.

  • Do account holders like it?

More on both below.

Opt-out Over Opt-in?

Stop us if we’re wrong…the main objectives of considering Value-Added Checking for your institution are:Thumbs Up Down

  • Generate revenue
  • Differentiate from competition
  • Stave off emerging Fintechs
  • Delight account holders

Therefore, your goal is to ensure as many accounts become Value-Added Checking as possible. We may not know you personally, but we know institutions like yours; you do things to create enormous success, not for “meh” results. Right? Of course!

So, upon implementing a Value-Added Checking account, there are two paths the institution can take. The first (and preferred) strategy is Opt-out.

With Opt-out, your existing Free Checking or other less benefit-rich account transitions to Value-Added Checking. Account holders receive notice that their current accounts will be changing, what they will now include, and that no action is necessary to enjoy the benefits.

However, not all account holders will want a fee-based account (they’re the ~20%). That’s ok! If your Free Checking account is the one in transition, we suggest adding a new Free Checking fall-back account. That way, these customers still have an option.

The other path is Opt-in. And…well, it doesn’t work so well.

What About Opt-in?

It’s a valid question. Here’s what some institutions say: “Instead of changing things for our members or customers, let’s just give them the choice and we know they’ll eat it up!”

Makes sense. Choice is good. Great options are appealing. It’s an incredible deal for what you get. Account holders should flock to the new account in droves! Unfortunately, they don’t. Why?

When we discussed the benefit costs, the prices stated were assuming Opt-out. For Opt-in approaches, those costs are much higher. Which means, even if the institution charges the same per month, their revenue is lower.

Additionally, historical data shared with us found that Opt-in setups run between 5-8% signups. At that level, it’s simply not financially viable for the Value-Added Checking provider to invest in marketing (and all those mailers, if that’s included) and training (some offer it in person).

While it would be great to recommend taking either route, Opt-in just doesn’t get the expected results.

Advantages of Opt-out

Ok, so you decided the Opt-out approach is worth a closer look. Let’s now review some of the advantages it offers for your institution and account holders.

  1. Enjoy blanket pricing on all benefits, keeping the prices low and the potential revenues *high*.
  2. Leverage all of the Value-Added Checking provider’s marketing, training, and outreach resources. Depending on the company you choose, this may include:
  • Development and printing of full-color customer brochures
  • Institutionally-branded and personalized letters mailed to all account holders
  • Consistent outreach to meet any advance notice regulations
  • In-person training for every one of your employees

3.  Bring approximately 80% of account holders into the Value-Added Checking account

  • Historically, 20% will opt-out, electing for the new Free Checking you set up earlier

Average Income of Value-Added Checking

If you net around $4 per month (that’s on a $5.95 fee with a cost of $1.75), per account, that could drive, on average:

$50 per year, per account

Let’s look at the income potential. Say your financial institution has 50,000 checking accounts. We’ll convert them to a $5 per month Value-Added Checking account. On average, 40,000 of those accounts will become Value-Added (the other 10,000 will opt for Free Checking and a small percentage will close or consolidate their accounts, further reducing your maintenance costs). Since you chose a top-level benefit bundle, your costs are $1.75 per account.

Some simple math gives us an impressive result:

(40,000 X $5) – (40,000 X $1.75) = $200,000 (gross revenue) – $70,000 (net cost) =

$130,000 additional income, per month!

What could you do with this extra income? Capital improvements? Community investment? Extra donations to your foundation?

We believe account holders need to experience their new Value-Added Checking account without thinking of the costs. To that end, and to reduce customer service challenges from general friction, we recommend all financial institutions offer a 90-day money-back guarantee.

Other Costs To Value-Added Checking

At launch, the Value-Added Checking provider may charge an administrative or start-up fee. This can be as high as $10,000, depending on available marketing and outreach options. This initial fee helps cover a portion of the marketing and training costs.

Consider what a personalized mailing to all your account holders would cost your institution.

In reality, their costs will far exceed what is charged. They understand the profits available within the new account, especially when it is implemented well, and are willing to make the up-front investment. Additionally, the Value-Added Checking providers view this as a partnership commitment.

In Summary

Checking accounts are now a commodity. They’re convenient places for consumers to keep and transfer their money. Though still the “hub” of banking relationships, their stickiness is diminished. Plus, with competition from other financial institutions, Neo-banks like Simple, Varo, and Chime, and threats from non-banks such as Amazon and Paypal, financial analysts advise differentiation through an increased value proposition.

While performing your due diligence amongst Value-Added Checking providers, please consider the following:

  • Menu of benefits
  • Marketing support
  • Training
    • Is it in person?
    • For every staff member?
    • Ongoing?
  • Case studies
  • Experience
  • References

Secure Checking LogoWith other paths for improving your checking solution exist, including Rewards and Interest Checking, we realize that a Value-Added Checking program is not for every financial institution. For those which believe it may be a fit, we are proud to offer Secure Checking, the choice of over 600 banks and credit unions nationwide.

Want to learn more about enhancing your institution’s checking? Feel free to read these articles:

 Ready for a web-meeting? Schedule here.

 

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

Focused on helping your bank or credit union grow in the face of emerging challenges.