Chief Investment Officer
Commercial Loan Automation
realigning your checking account product line
Reg E has taken a serious bite out of the free checking product profitability. Most banks are deep into the budgeting process, and the revenue gaps are wide and deep.
There are primarily three ways to make up for the lost revenue:
· Organic growth
· Revised pricing
· Revised product line
One conclusion: a need to rethink the checking product suite, since free checking, too long the anchor of the retail and small business transaction product line, must be dead.
Here are some thoughts as you rethink your product offering in the quest for fee income replacement sources for 2011.
- Simplicity. Too many transaction account product lines have been splintered into an indescribable, confusing and unsellable product offering. Until recently, many banks had (and many still do) 5+ checking account types in their product line. In addition to the basic product and the high end product, Students, Seniors and other easily identifiable segments merited their own checking product. In addition, certain bells and whistles were added to many checking accounts, not to mention grandfathering past mistakes.As a result, retail and small business sales forces could not effectively sell all the products. They could not figure out what’s different among all these varieties. Instead, many a banker picked two or three products they found valuable, and sold only those products. Not only did the banker prove unable to understand the finer differences among the various products, but the customers were deeply confused as well. Plus, at the end, all concluded (often erroneously) that free checking is the best solution anyway.
As you contemplate overhauling your product line, consider simplicity as your number one goal. Our business isn’t nearly as complex as we make it out to be…
- Why do we call it “checking” anyway? Checks currently account for roughly 20% of all payment transactions. Many customers, especially the younger ones, don’t even know where their first box of checks is. We continue to migrate our customers to plastic and e-banking. So why do we keep calling it the checking account?This is a rhetorical question. The message is clear though: e-banking and plastic transactions profoundly change the profitability of transaction accounts. Finding ways to match customer segments with a product designed especially for them which is also profitable for the shareholder is the challenge and opportunity at hand.
- The rumors of the death of the free checking account are premature. My second point brings me straight into free checking. We have grazed on the product for a decade and our bankers are convinced that nothing can be better than Free. But in reality they are wrong. Many customers are better matched against products that are not free. At the same time, there is a segment that behaves in ways that makes Free Checking profitable. So are we throwing out the baby with the bath water? What’s wrong with offering a Free Checking product with no checks, no paper statements and debit card and ACH or bill-pay activation expectations? It seems to me that this is a viable option when properly structured.
- Try targeting. It helps to envision the target customer when you design your new checking account line. You’ll discover that customer needs aren’t nearly as segregated as it might initially appear, and that a strong and simple product suite can be effectively sold with full customer satisfaction.For example, one bank discovered that, like others, the majority of their free checking customers qualified for higher-end products. The bankers simply stopped at the Free offer and never up-sold, thereby short-changing both the customer and the shareholder. Better matching of the product with the customer is a win-win situation.
- Be on the moral high-ground. What got us here in the first place is finding ways to create a zero-sum game between our shareholders and our customers. I urge you not to repeat this mistake as you consider your new product line. A fee is a fee, even if we shift it from NSF to daily overdraft fee. Imposing heavy fees or creating accounts that trip customers such that they don’t get the yield they expected is, in the long run, another no-win situation.
Let me clarify further: I believe strongly in designing products and services that create triple win situations for our customers, shareholders and employees. For example, activating debit cards is a triple win play. Structuring a checking account that is free with no checks is another. Offering a wide range of benefits and possibly monthly fee waivers to an active account with high balances is another. I believe that effective product development will be a triple win by ensuring the products we sell are profitable; making the sales process easy and transparent; and giving the customers what they need: the perfect trifecta!
PS A word on organic growth: The number one problem with organic growth is – it isn’t easy… It requires tenacious blocking and tackling coupled with an on-going need for uncomfortable behaviors such as asking open-ended questions, initiating customer contact etc. Organic growth comes from relentless, effective, daily execution across the entire sales force. While is difficult to achieve, success pays dividends for decades.