Checking is Checking is Checking?
At least it used to be. There’s a lot more to the “bread-and-butter” account of most financial institutions. Whether offering Free Checking, a standard fee-based checking account, Rewards Checking, or new Value-Added Checking, decisions must be made to retain account holders while delighting new and existing customers. This article talks about that last example, Value-Added Checking. What is it, why does it matter to the industry, and how can you decide if it’s right for your institution.
Put simply, Value-Added Checking is to your checking account as Netflix is to your TV habits. For a fair price, you get a lot more than normal TV broadcasts, ensuring the subscription gets paid month after month. Value-Added Checking takes a standard checking account to new levels, adding substantial, well, value through a range of perks and opportunities for saving.
Before we get to that, let’s understand where checking is as a product, and why you would even consider making any changes to such a long-standing staple of banking.
Traditional Checking Accounts Are Disappearing
The number of checking accounts is falling. So says a recent CU Times survey using bank, thrift, and credit union data, showing them decreasing from about 690 million in 2011 to just over 600 million in 2017. That’s a 12% decline. In only 6 years. (Moeb’s Services 5/2018)
I’m startled. Are you? And what does it mean? According to Moebs Services CEO Michael Moebs, fintech companies, and others such as Walmart, are already acquiring this business. Plus, in March of 2018, a little piece of news from an equally little online retailer rocked the financial services industry. Ok, it wasn’t little news. And the retailer isn’t little, either. The Wall Street Journal reported that retail giant Amazon was “in talks” with J.P. Morgan Chase. Were they building the oft-suspected “Prime Checking” program? Speculation abounds.
With financial institutions still in shock, a LendEDU survey found that “roughly 45% of respondents were open to using Amazon as their primary banking account, while 49.6% would use a savings account created by the company” Ouch.
Is Checking Doomed?
That’s a lot to take in for an industry historically reluctant to change and slow to adapt. It may even inspire some to claim, “traditional checking is doomed!”
However, like much of the financial services realm, it is changing. And fast. Some institutions saw the challenges arising and planned ahead with creative ideas of their own.
Rewards Checking…to the Rescue?
On its own, free checking is boring. So of course it could be vulnerable to “poaching” as new technologies and industries emerge. Nearly every institution pairs their traditional checking with a “digital bank”, in other words, their online and mobile banking. The latter of which is becoming a costly proposition to keep current with rising expectations. Let’s be honest, would you bank somewhere they didn’t offer a mobile app? Exactly.
Progressive institutions recognized that their “just like everyone else” solution wasn’t going to cut it in the hyper-competitive world of tomorrow. So years before talk of Amazon entering the checking world, Walmart providing banking solutions, and modern fintechs redefining what it means to “bank,” institutions created ”Rewards Checking” . They’re regular checking accounts, with more. But only if the account holder does more. Such as:
- Using a debit card
- Direct deposit
- Auto-pay loans
- Home banking
- Online bill pay
- Maintaining a minimum balance, or
- Opening or using other accounts or services.
As the above criteria are met, rewards are automatically shared with the account holder. Things like:
- Reduced or eliminated fees on common behaviors,
- Refunds for ATM fees,
- Lower rate eligibility on loans,
- Interest on checking balances.
What’s not to enjoy? Use your account as an…account, and reap the rewards. Historically, such programs prove popular and result in increased customer retention (with more users making your debit card top-of-wallet). There are also 3rd party companies offering software and administrative services to assist your financial institution in creating and managing a Rewards Checking program. For example, Kasasa® has programs that offer Cash-back, High Interest rewards as well as refunds on iTunes®, Google Play®, and Amazon® purchases.
Rewards Accounts’ Achilles Heel: Qualification
While rewards accounts may be part of the solution for Financial Institutions, there is one main issue: Qualification. Since these accounts are based on activity and loyalty, in order to be eligible for rewards, customers must, to put it simply, do stuff.
Perhaps there is a requirement to use the debit card on signature transactions at least 10 times per month. Or have a payroll direct deposit at least once per month. Some, such as, “have an auto loan with the institution,” are easy. Others get a little…complicated.
- What happens when they finish paying off the car? Do they lose the checking account benefit that loan offered? (Probably, but who tells them?)
- What if the card holder forgot to do signature on some debit transactions and instead entered their PIN?
Such situations can create negative situations for account holders, as they learn they didn’t meet certain requirements and now owe a fee. Not only will this cost staff time and resources, it creates frustration and hurts the financial institution’s perception.
No one wants to feel like they’re being made to “jump through hoops.” It’s challenges such as these that can take a good idea and have it now detract from the customer experience.
Free Checking: Asking the Hard Questions
Free Checking is a staple of all financial institutions. Or is it? With maintenance costs estimated by the American Bankers Association to be between $250-$400 annually, the trend in banks is to do away with Free Checking. In fact, according to Bankrate: only 38% of banks offer free checking while 84% of the nation’s 50 largest credit unions continue to offer Free Checking.
Why the disparity?
Are banks simply being realistic? Are credit unions making a judgement error on what their members actually want?
Credit unions, in general, have lower fees. Also, as not-for-profit cooperatives, they have more latitude to recoup costs through other services. In addition, many credit unions serve memberships of limited means, with some account holders living paycheck to paycheck.
For those members, Free Checking may be the best fit. There is also a long-standing belief that a checking account is a core product, around which, once established, additional product relationships can grow. However, though this was true in the past, now, it is questionable, since technology exists to make it easy for customers or members to simply open & transfer accounts to most institutions.
The “Big Banks”, those which operate on a national and multi-national basis, actually price their checking accounts in line with their real costs. Unlike credit unions which see Free Checking as a “loss leader” to produce a multi-relationship member, it is rare to find truly Free Checking within the largest banks’ offerings. What about that 38% we referred to above? Mainly Community Banks. For them, the data suggests that they offer Free Checking based on the demographics of their customer base.
While free checking is important for many people, surveys continue to show that preferences are moving towards solutions which offer substantial value. Even if people pay for it.
Would institutions like yours benefit from a new value proposition?
Enter Value-Added Checking. Let’s divide this chat into a few sections: What is it, why might you care, what do people get from it, and how can you take steps right now to see if such a program might be a fit at your institution. Does that make sense? Great.
What Is Value-Added Checking?
Put simply, value-added checking is an account which offers far more benefits than a traditional checking program. It’s able to do so by having a low monthly charge. Think of it like your Netflix, Spotify, or Blue Apron subscription. You pay for these because the value they deliver is far above the cost, right? Perfect, now we’re on the same page.
Why Care About Value-Added Checking?
Before diving into any specifics of Value-Added Checking, let’s look at “why.” We already agreed consumers will pay for perceived and real value. Remember over-the-air tv (it still exists, by the way)? How about the rabbit ear antennas? Maybe you were one of the enterprising individuals taking aluminum foil to new heights as you wrapped it around your antennas, desperate for a bit less graininess.
Then came cable, followed by satellite.
Both cost quite a lot more than free! However, the value was there, and people paid. Today, the trend is moving in another direction, with “cord-cutters” leading the way towards individual subscription plans featuring exclusive content, fewer or no commercials, and decreased reliance on the cable provider. No matter the choices, people move in the direction of easy-to-use and massive value.
Value-Added Checking, like many streaming services, is a perk people want to have. And they’re willing to pay.
What Do You Get With A Value-Added Checking Account?
So what does Value-Added checking offer? Great question. Obviously, everything you’ve come to expect from a traditional checking account is there. Individual features vary by institution, and usually include a debit card with ATM use (perhaps alongside some amount of ATM fee reimbursement), online bill pay, and more. Then there’s the “Value-Added” part.
Since checking is most people’s direct link with their spending money, the majority of Value-Added Checking accounts feature ID Theft Protection, Monitoring, and Recovery as a highlight.
With data breaches on the rise, it is sadly reasonable to assume all our information is in the hands of those who may take advantage. The time, cost, and frustration involved with identifying an identity compromise, addressing the immediate issues, then working to restore your proper digital name can be substantial.
Proactive monitoring and rapid intervention delivers real value and peace of mind for many.
Beyond protection, Value-Added Checking accounts seek to reduce unexpected costs. A common benefit is cell phone damage insurance. How many people do you see with cracked screens? Since these repairs can cost hundreds of dollars, just one display claim can “pay for” this account for years. Other benefits are similar to those of credit cards, with Product Damage Protection and Extended Warranties, to name a couple.
With healthcare costs rising and charges hard to predict, some Value-Added Checking programs offer ways to save on your (and your families’) overall care. From vision to dental to even prescriptions, the savings far exceed the cost of the account. While not insurance, they can help reduce the costs of staying or becoming healthy.
Finally, the fun part…discounts! Local businesses and online merchants alike can be found in some of these membership programs. Once again, a single dinner out “2-for-1” coupon more than covers their cost for the account. Would you let such a benefit continue to renew?
Remember, every benefit discussed, on its own, pays for the account each month. Now imagine the real and perceived value when they’re all combined!
Here’s an example partial menu of benefits from a Value-Added Checking provider serving over 600 financial institutions:
ID Theft Protection, Monitoring, & Restoration
- $25,000 Identity Fraud Expense Reimbursement Coverage
- 3-in-1 Credit File Monitoring & Automated alerts
- Ongoing monitoring and notice of any activity
Unexpected Expense Coverages
- AD&D Insurance (Can add to any offered by your financial institution)
- Cell Phone Damage Protection: Up to $300 towards replacement/repair on all phones in family
- Debit Buyer’s Protection & Extended Warranty
- Prescription Drugs
- Vision – Glasses, contacts, exams, and procedures
- Dental – Routine care, orthodontics, some cosmetic dentistry
Entertainment & Travel Savings
- Shopping rewards for online merchants through customized portal
- Mobile & Desktop platform for coupons to businesses nationwide
Building Your Value-Added Checking Program
Your own Value-Added Checking program may include some or all of these example benefits. Make sure you choose a provider which allows you to customize your offering. Since each benefit has a specific cost, this can help you build the right solution for your account holders, at a price they’ll love. Rates on individual components can be dependent upon a number of factors including:
- Size of checking portfolio
- Customer base (Potential reach)
- Marketing options
- Staff training
From a careful analysis of these numbers, your institution can then create a retail cost balancing income potential, customer interest, and expenses. It is then integrated into one or more of the institution’s core checking accounts. Industry experience found that when implemented as a fee-based program (averaging $5 per month) directly replacing a Free Checking account, only 20% will opt out to remain with the Free Checking.
Value-Added Checking Benefits For Account Holders
Since offerings are available at wholesale pricing, each represents large savings over retail. Some examples:
- ID Theft coverage alone can run $9.95-$29.95 per month when purchased individually
- Cell phone insurance starts at $13 per month per device from the carrier
- Nationwide coupon program averages $20 annually
Add these and all other offered benefits together and such an account delivers massive value for the cost.
Speaking of…what does a Value-Added Checking account usually cost account holders?
Most institutions offer their Value-Added Checking account for between $2.95 and $7.95, depending on the product mix and desired retail mark-up.
There’s a lot we unpacked in this article. Let’s try to bring it all together and clarify the benefits of Value-Added Checking.
Benefits for Account Holder
- Savings on shopping and health care
- Reimbursements for unexpected bad stuff happening, from an identity being stolen to dropping their phone
- A stellar checking account
Benefits for Financial Institution
- Offer a clear expectation of account holder experience with no confusing qualifications
- Increased account “stickiness” and improved loyalty
- Branded benefits increase institution’s visibility
- Substantial new revenue generation (in a form which account holders are happy to pay)
- Reduced account maintenance costs
- Simpler regulatory compliance (Expenses don’t fall excessively on one particular group)
Summary & One Last (Mind-Blowing) Study
We began this chat by quoting studies. Let’s leave you with one last survey result. Are you ready? Because it’s a doozie:
Nearly half of 30-something Millennials are willing to pay $5-$10 a month for a theoretical Amazon checking account that included Value-Added benefits. This powerful survey truly sums up the threats to financial institutions.
Could you engage these Millennials with your current offerings? Would they care? These are essential questions you need to ask as new competitors enter the most traditional part of the banking industry.
Is Value-Added checking right for your institution? Is Free Checking still the right path? We had these questions, so we went out to answer them. What came of this process is now available to you.
Want to learn more about enhancing your institution’s checking? Feel free to read these articles:
- What are the Costs of Value-Added Checking?
- 7 Ways to Increase Checking Revenue
- Value-Added Checking Case Studies: Changing from Free to Fee
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