In Search of the Perfect Checking Line-Up

Many bankers are nobly searching for the perfect consumer checking line-up: One that connects better with customers, is more financially productive, differs dramatically from the competition and meets the changing needs of customers.

In that search, there are a lot of factors to consider, including macro and micro market segmentation, an array of home grown ideas and third-party solutions, a myriad of consumer buying trends and personal preferences, plus a lot more too lengthy to mention. It’s enough to make your hair hurt.

So, is there such a thing as the perfect consumer checking line-up? And if not, what should you focus on to get as close as possible to the perfect checking line-up?

From my standpoint, there’s not a perfect line-up today that every bank can “plug and play.”  Rapidly changing technology, evolving consumer behaviors, individual financial requirements of a particular financial institution, and most recently the fluid checking-related regulations all make a perfect line-up impossible.

To get close to the ideal of a perfect line-up, I suggest you subscribe to an “easy as 1-2-3” way of thinking, deciding and then doing.

The first 1-2-3 will work no matter your financial institution’s situation because it is consumer-centric and not bank-centric. So start your thinking here and you’re on your way:

1. Understand how consumers really choose a checking account.
2. Make the line-up as simple as possible to make it easy to buy and sell.
3. Make the products as good as you possibly can so you’re not only competitive but also have at least one account your customers will happily pay for.

Once you have these as your guiding principles, let’s focus on each one individually.

Consumers choose an account based on their buyer type. So here’s the second 1-2-3, the three types of buyers:

1. A Fee Averse Buyer – This buyer wants free checking if it’s available or the cheapest account you offer.
2. An Interest Buyer – This buyer wants the best yield possible on their deposits and expects a market yield or above market yield.
3. A Value Buyer – This buyer wants the best account at your institution, is most focused on account benefits and is willing to pay for the account if there’s a perceived fair exchange of value.

Your branch bankers’ product knowledge or your online merchandising message will play a significant role in helping customers decide which type of buyer they are. Top-performing retail financial institutions know this stone cold. They don’t automatically assume nearly every customer is a fee adverse buyer because they’re not. About 50 percent are. Value buyers make up about 40 percent. And in today’s interest rate environment, about 10 percent are interest buyers.

Once you understand how your customers choose checking accounts, what type of accounts should you offer and how many? The answer is the third 1-2-3. For line-up simplicity and ease of buying and selling (and the sanity of your customer and your branch banker), there are only three types of checking accounts you should offer:

1. A No/Low Fee Account
2. An Interest-Bearing Account
3. A Value-Based Account

Of course, the most common no-fee account in today’s market place is unconditionally free checking. However, more and more institutions are now offering  free checking with conditions, that is, free if a simple condition is met, like getting e-statements instead of paper ones or keeping a minimum balance. If this condition is not met, then there’s a penalty fee, which is sometimes modest and at other times extremely penal for the value received.

For the interest account, customers still want as much interest as they can get (which isn’t a lot these days) and feel like the higher the balances they keep in the account, the higher the interest rate should be. Here we find a tiered-rate account with interest beginning at a stated (reasonable) balance level rather than from the first dollar. This rewards and encourages higher balances for these buyer types while letting you manage your interest expense.

The value account is one that’s not as easy to design. Having only basic checking services and charging fees for them is risky. So there is the need to enhance the value account beyond the most basic checking services. And consumers have stated in studies and in their buying actions that they will happily pay for selected non-traditional checking account benefits. (See my earlier article on BankDirector.com, “Getting Bank Customers to Happily Pay Fees.”)

If designed right, this value account can generate significant, customer-friendly revenue of at least $75 per year from about 40 percent of your customers.

So while there’s not a perfect line-up that’s an easy “plug and play” into every financial institution, you can get very close to it and produce great results by following the guidelines mentioned above.