I’m hearing a lot about the demise of free checking in the bank and credit union environment. Rising costs are cited, among other issues, but I think that consideration has to be given to the profile of customers who have free checking accounts. If you are doing even rudimentary profitability analysis, you should be able to assess the impact of free checking on customer profitability. A properly configured account will serve to modify consumer behavior in ways that reduce the costs of servicing the account. This can be done without fees directed to the consumer. Increased debit card use, email statements instead of paper, mobile or Internet access (instead of phone calls and voice response systems,) and automatic deposit of payroll or other credits are commonly thought of as components of a successful free checking account.
One source I saw recently indicated that rising transaction volumes were a reason for FI’s to eliminate free checking. While per account volumes are rising, the increase is almost entirely attributable to electronic transactions, and these are not increasing your costs. Debit card activity is eclipsing check writing, and virtually all debit card transactions are not only cheaper than checks, they often generate interchange revenue. You want customers to use their debit cards, and a properly promoted free checking account will encourage such use.
If consumer accounts are important to your institution, free checking remains a great way to attract and leverage such relationships. As always, understanding your costs and revenue opportunities is the basis for configuring and pricing accounts. I’m available if you want to review and discuss these or other matters.
Trent Fleming serves as a trusted adviser to financial institutions on matters of technology, strategy, and management, and as an industry speaker. In his advisory role, he has helped hundreds of banks make good decisions about technology from a business perspective. Fleming’s presentations on technology, management, and strategy consistently get the highest marks from his audiences. He serves on the faculty of the Graduate School of Banking at the University of Wisconsin, and regularly contributes articles to industry publications. More information at www.trentfleming.com , firstname.lastname@example.org, or @techadvisor on Twitter.