How Banks Can Grab a Slice of the $11 Trillion B2B Pie

Written by

A team of economists at the Federal Reserve has tracked noncash payment trends in the U.S. since 2001, including the number and value of transactions across all major payment methods.

Leveraging their December 2021 Payments Study update, Visa’s Business Solutions team estimates there were 2.9 billion B2B checks for an estimated $11.8 trillion. This represents 26% of all checks paid by U.S. depository institutions and 57% of paid check dollar value, based on the Fed’s 2018 Check Sample Survey. Given the ongoing decline in check use by U.S. consumers, we suspect the B2B share is likely even higher today.

Despite decades of decline in check use, check displacement is still a massive growth opportunity for electronic payments, particularly for commercial card. For context, commercial card rails process an estimated $500 billion in business spend — equivalent to just 4% percent of the value of B2B checks, according to McKinsey & Co.’s U.S. Payments Map estimating 2020 U.S. commercial card spend at $485 billion.

Readers are likely familiar with the traditional challenges to commercial card acceptance by suppliers: card processing fees, manual processing of virtual card payments, accounts receivable reconciliation, among others. These challenges are real, but payments innovators are making strides on these daily. For example, let’s consider the inertia by corporate buyers who write all these checks. According to the Fed’s last Check Sample Survey, 82% of B2B checks were for $2,500 or less; 55% were for $500 or less.

These low-value transactions can be paid via a commercial card, right? Unfortunately, too few buyers feel motivated to pursue these opportunities. Often the return on investment feels too low to track down all the data about where these checks are going and then convince suppliers to accept card. Generating a consolidated spend file may require tapping into multiple systems with disparate data structures. In the end, fewer than half of a company’s suppliers are likely to accept commercial cards. It’s no wonder decision makers don’t jump at the chance when bank salespeople ask for a spend file simply to determine if there’s an opportunity worth pursuing.

A New Operating Model
But what if that weren’t the model? What if we took the burden of finding opportunities away from the corporate client entirely? What if a card salesperson showed up at the door with a credible opportunity already in hand? There’s one model that client banks can tap into that does just that.

Each of the 2.9 billion B2B checks paid every year is paid by a financial institution. Most financial institutions (or their processors) use optical character recognition (OCR) in the daily processing of those checks. By repurposing OCR data from checks, banks can identify which suppliers their corporate customers are paying that already accept commercial card, and then pinpointing which business bank customers have the greatest opportunity to shift check spend with those suppliers to card. These banks’ salespeople no longer begin a client conversation by asking for a spend file. Instead, they present a credible analysis, based on the client’s own payments volume processed by the bank.

What used to be a data mining project for the client becomes a simple, data-driven decision about how to move forward. Banks are in a unique position to approach business customers about these opportunities. Without the deposit relationship, commercial card salespeople must use the old model.

If it sounds too good to be true, it’s not. But it does take work. Some could make the argument that the easy growth in commercial card is over; that commercial card issuers are in a race to the bottom. We are more optimistic than that. We believe there is a tremendous, untapped opportunity out there: an $11.8 trillion pie in the form of 2.9 billion B2B checks.

As Economic Uncertainty Looms, Control What You Can Control

Written by

With an economic downturn taking shape on the horizon, financial institutions must look inward to maintain margins and the health of their banks. In doing so, they will be able to serve customers better.

Astute executives I meet with realize the intrinsic value of “controlling what they can control.”
Banks can help customers optimize their cash and working capital. But to be able to serve customers with the best services at the most competitive prices, banks must first focus on the efficiency of their own organizations.

Invest in RPA, ITM Automation
Prudent investments in high-return technology can offer immediate benefits to bank efficiency. One such high-impact technology is robotic process automation, or RPA. RPA has evolved from a futuristic discussion at trade shows to a robust, enabling technology that can lower operating expenses raise productivity and reduce errors.

Automating labor-intensive processes enables banks to save time, leverage scarce resources and focus on creating unique customer experiences, while eliminating redundant work and tedious tasks. Getting started in RPA has become easier. A technical partner should offer pre-bots that are pre-designed, pre-built and developed from common industry-driven use cases. Pre-bots offer financial institutions an immediate, low-risk entry into RPA. These ready-to-run bots can offer a bridgehead and potential early success into RPA, along with providing an easier avenue toward more comprehensive automation.

Another high- and immediate-impact technology progressive banks are taking advantage of is integrated teller machines, or ITMs. ITMs provide an in-branch banking experience without customers ever having to leave their car. Consumers can interact with tellers via live video to make deposits, cash checks, make loan and credit card payments, withdraw funds and transfer funds. Exact change is available for check cashing.

Video teller technology gives customers the ability to interact with a live video teller from a centralized location, extending the reach of a bank’s most capable client-facing staff. This can help banks efficiently expand into new, alternative markets.

Determine, Execute Your Strategy
Highly efficient banks identify their strategy and then execute the supporting tactics with a single-minded purpose. Smart bankers don’t try to be all things to all customers; instead, their focus is on one or two overriding objectives, such as becoming a low-cost provider, an exceptional service organization or a leader in innovation. While these goals are not mutually exclusive, in practice, few banks can progress them all in parallel.

The best bank leaders, choose their primary objectives wisely, then seek outside expertise in areas that help them accelerate strategic objectives and plans. They actively network with peers in industry events and conferences, they learn from best-in-class partners and they seek the advice of experienced banking experts. They never stop the learning process and apply a wide range of experiences to their own plans.

Continuously Improve Business Processes
Well defined, repeatable business processes provide the foundation for how work gets done within a financial institution. This allows for tasks, technology and tools supporting a process to be redefined or implement an entirely new process based on automation.

Business process improvement (BPI) actions, undertaken by subject matter experts, deliver the insight required to execute more efficiently, create value for customers or enhance revenue for the institution — or provide all three. Tactics for growing bonds that crossover business lines with BPI include:

• Establish cross-functional teams to participate in collaborative facilitated sessions to identify and help institute process changes.
• Have leaders “walk- he walk” by inviting peers from other business units to participate regularly in staff meetings.
• Distribute regular internal communications as widely as possible within an organization.
• Create centers of excellence for sharing and knowledge transfer.
• Reward collaborative efforts that produce tangible results.

BPI helps financial institutions uncover opportunities to eliminate non-value manual tasks while digitizing and removing paper from manual processes.

Align Skills With Strategy, Needs
The culture and people of today’s banks are critical in executing an organization’s strategy and tactics. As automation replaces mundane tasks, bankers must become universal relationship managers and problem solvers. Continuous training, like continuous process improvement, is the norm for well-functioning financial institutions.

Technology partners with robust training methodologies — which are also familiar with the newest business processes — can help bank personnel ensure they’re using procedures, workflows and technology that best meet their clients’ needs with the greatest efficiency.

Even in uncertain economic times, savvy bankers who invest in automation, determine and execute a well-defined strategy, continuously improve their business processes and ensure their staff have the correct skills will develop the framework that characterizes high-efficiency financial institutions. Those efficiencies will, in turn, empower banks to serve customers better and at lower cost.

How Legacy Systems, Tech Hold Bank Employees Back

Written by

The recent explosion in financial technology firms has allowed banks to make massive strides in improving the customer experience.

The most popular solutions have focused on making processes and services faster and easier for customers. For example, Zelle, a popular digital payments service, has improved the payments process for bank customers by making transfers immediate — eliminating the need to wait while those funds enter their checking account. There are countless examples of tools and resources that improve the bank customer experience, but the same cannot be said for the bank staffers.

Bank employees often use decades-old legacy systems that require weeks or months of training, create additional manual work required to complete tasks and do not communicate with each other. Besides creating headaches for the workers who have to use them, they waste time that could be better spent meaningfully serving customers.

The Great Resignation and tight labor market has made it difficult to find and retain workers with adequate and appropriate experience. On top of that, bankers spend significant amounts of time training new employees on how to use these complicated tools, which only exacerbates problems caused by high turnover. The paradox here is that banks risk ultimately disengaging their employees, who stop using most of the functionality provided by the very tools that their bank has invested in to help them work more efficiently. Instead, they revert to over-relying on doing many things manually.

If bank staff used tools that were as intuitive as those available to the bank’s customers, they would spend less time in training and more time connecting with customers and delivering valuable services. Improvements to their experience accomplishes more than simply making processes easier and faster. As it stands now, bank teams can spend more time than desired contacting customers, requesting documents and moving data around legacy systems. This manual work is time-consuming, robotic and creates very little profit for the bank.

But these manual tasks are still important to the bank’s business. Bankers still need a way to contact customers, retrieve documents and move data across internal systems. However, in the same way that customer-facing solutions automate much of what used to be done manually, banks can utilize solutions that automate internal business processes. Simple, repetitive tasks lend themselves best to automation; doing so frees up staff to spend more of their time on tasks that require mental flexibility or close attention. Automation augments the workers’ capabilities, which makes their work more productive and leads to a better customer experience overall.

There are good reasons to improve the experience of bank employees, but those are not the only reasons. Quality of life enhancements are desirable on their own and create a greater opportunity for employees to serve customers. When deciding which tools to give your staff, consider what it will be like to use them and how effectively they can engage customers with them.

How Banks Can Solve the Problem of the Unbanked

Written by

The tenacious problem of the unbanked may have a powerful opponent: a consumer-friendly checking account offered by banks across the country.

More than 7 million U.S. households didn’t have a bank account in 2019, according to the Federal Deposit Insurance Corp.; and a quarter of those households were “very or somewhat interested” in opening one. To close that gap, more than 100 financial institutions have certified one of their checking accounts as safe, affordable and transparent. The program, called Bank On, aims to leverage banks as a community partner to make it easier and cheaper to bring unbanked and underbanked individuals into the bank space.

The Bank On program pairs certified checking accounts issued by local banks to community programs that support financial empowerment and wellbeing. The account standards were created by the Cities for Financial Empowerment Fund, with input from financial institutions, trade associations, consumer groups, nonprofits and government parties. The accounts must be “safe, affordable and fully transactional,” says David Rothstein, who leads the national Bank On initiative as a senior principal at the CFE Fund. These accounts don’t carry overdraft fees or high monthly fees. They have a low minimum opening deposit and the account holder must be a full bank customer, with access to other services.

The standards address some of the concerns that unbanked households have about bank accounts or their experience with banking. Almost 50% of respondents told the FDIC that they didn’t have enough money to meet minimum balance requirements, 34% said account fees were too high and 31% said fees were too unpredictable (respondents could select more than one reason).

The FDIC found that not having a bank account translates into greater reliance on potentially costly nonbank financial services. Among unbanked households, 42% said they used money orders.

“People are far more likely to reach their savings goals when they have a bank account and they’re getting [financial] counseling. They’re much more likely to improve their credit scores and pay down debt as well,” Rothstein says.

Chicago-based First Midwest Bancorp recently decided to certify its Foundation Checking account, a product it has offered for decades that is at the crux of how the bank helps its customers find financial success and independence. First Midwest offers Foundation Checking customers financial counseling either in-house or through nonprofit partners; having a Bank On-certified account was a “natural extension” and puts the $21.6 billion bank on the radar of even more nonprofit partners that are focused on financial wellness within its Illinois, Wisconsin and Iowa markets, says Thomas Prame, head of retail banking. He adds that the application process was simple and smooth.

Millions of Bank On accounts have been opened in recent years. The Federal Reserve Bank of St. Louis maintains a data hub of account activity submitted by 10 participating banks, ranging from Bank of America Corp. and JPMorgan Chase to $2.9 billion Carrollton Bank, the bank unit of Carrollton, Illinois-based CBX Corp.

More than 5.8 million accounts have been opened at these banks to date; 2.6 million accounts were open and active in 2019. The Federal Reserve Bank of St. Louis found that almost $23 billion was deposited into Bank On-certified accounts at those banks in 2019, according to its most-recent report, with an average monthly balance of $345 per account. A little more than a quarter of the account holders used direct deposit; three-quarters were digitally active. In 2019, 85% of the customers who opened a Bank On-certified account at one of these banks was a new customer.

Adoption of these accounts is “greatest in areas with high concentrations of lower-income and minority households,” using zip code as a proxy, according to a July analysis of the data by the Bank Policy Institute, a big bank trade association. In 2017, nearly 60% of new Bank On-certified accounts were for customers residing in a zip code with more than 50% ethnically diverse populations, even though 30% of the participating bank branches were in these zip codes.

Banks that offer certified accounts are eligible to receive credit for the Community Reinvestment Act for the accounts themselves as well as volunteering or financially contributing to local coalitions that promote these accounts within their markets. Additionally, the accounts can attract new and younger customers to a bank, forging relationships that could deepen over time as the customer ages. More than 115 financial institutions have certified one of their accounts in the program.

Account certification is simple and straightforward. The CFE matches a bank’s account to the terms and conditions of the program and alerts the institution if it needs to make any changes. Certification can take as little as a week; the CFE can also pre-certify an account that hasn’t launched yet. Banks with qualifying accounts can use the Bank On seal of approval in marketing and other communications.

Once Stagnated, Banks Are Refreshing Checking Accounts to Compete

Written by

Once a staid and basic product offering, banks are reinvigorating consumer checking accounts.

A number of banks, taking a page from the challenger bank playbook, are adding features to their accounts to please consumers: early access to a direct-deposited paycheck, free overdraft and short-term loans. These changes attempt to match the offerings from financial technology platforms such as Chime and Current, which have been growing exponentially and attracting billions in venture capital funding.

The default consumer checking account is easy to take for granted. Most banks offer them without cost to customers in exchange for a deeper relationship such as a monthly direct deposit or a minimum balance. The hope is that a customer is profitable through noninterest fee income such as debit card interchange fees or through other products the bank can cross-sell to the customer.

But the Durbin amendment, part of the 2010 Dodd-Frank Act, reduced interchange income for banks with more than $10 billion in assets. The Durbin amendment made checking accounts less profitable while digital account opening made it easier for consumers to open an account with a competitor. Checking accounts stagnated, says Alex Johnson, director of fintech research at Cornerstone Advisors. Joining the fray were online-only neobanks like Chime, Digit and Varo Bank, N.A., a fintech that received approval for a bank charter in July 2020 and now has $403 million in assets. They customized their checking accounts with valuable features to gain new customers — including customers willing to pay for some features.

“Investments in digital are not the same as investments in deposits, but they were treated as the same a lot of times,” Johnson says. “Banks said ‘We’re keeping pace, we let people open up these accounts on their phone.’ That’s great, but … are you doing anything new to improve the value proposition there? The answer is no.”

Now, a number of banks are reconsidering their deposit offerings to drum up interest from new customers and deepen relationships with existing ones. Many of them leverage technology, require direct deposit information and are consumer friendly, helping customers avoid overdraft fees. Capital One Financial Corp. and SoFi Technologies— a fintech that has applied to acquire a community bank — offer access to direct deposits paychecks two days in advance, following Chime’s lead. Pittsburgh-based PNC Financial Services Group launched a feature called “Low Cash Mode” within its digital wallet in April; Columbus, Ohio-based Huntington Bancshares rolled out a cash advance product in June for checking account customers with a history of monthly deposits. The offering from the $125.8 billion bank takes a page from Varo’s Varo Advance product and is addition to the bank’s overdraft grace period. Ally Financial, which has $181.9 billion in assets, did away with overdraft fees altogether.

The intense focus on reinvesting in deposit products relates directly to the importance of primacy. Consumers define their primary bank as the institution that holds their checking account, versus the institution with the car loan or mortgage, says Mike Branton, a partner at StrategyCorps.* StrategyCorps works with banks to add services to checking accounts using a subscription model.

Measuring primacy — the number of households or customers that genuinely consider an institution to be their primary one — is hard for banks. Branton says many banks don’t have a set definition or use a definition based solely on banking behavior, such as account balance or debit card swipes; others look at the sheer number of other accounts linked to a checking account. StrategyCorps uses a financial definition for primacy that considers banking behavior and account activity in terms of revenue generation: Primary customers generate $350 or more a year for their bank.

That kind of revenue can be a tall order when banks have offered free checking for decades. Results from cross-selling may prove elusive. But free doesn’t have to be a showcased feature of checking accounts, especially if customers think the services and benefits are valuable. Digit, a fintech that helps customers save money by analyzing their spending and automatically moving funds when they can afford it, charges $5 a month. The fintech Current charges $4.99 per month for a premium account, which includes up to $100 in overdrafts and early access to direct deposits such as paychecks, a benefit for low- and moderate-income Americans who are living paycheck-to-paycheck.

“Products are more important than ever,” Branton says. “I think what banks are learning from the pandemic is that because people are not coming in the branch and experiencing the human touch as frequently, but are interacting with the banking product, they must make their products better than ever.”

*Bank Director founder Bill King is also a founding partner of StrategyCorps.

Reimagining Small Business Checking

Written by

If you could start your own bank and design it from the ground up, what would it look like?

And if you’re a business banker with a focus on small business clients, how would your reimagined bank, and its core product offerings, differ from your current ones?

This is the challenge plaguing banks today. For the most part, business banking products have become a commodity — it’s virtually impossible to differentiate your bank’s offerings from the ones being sold by your competitor down the street. For that matter, it may be hard to draw meaningful differences between your various accounts, such as with your retail and commercial offerings. That’s one reason why 27% of business owners rely solely on a personal account. And it’s also why only 38% of small to medium business owners believe that business banking services offer extra benefits compared to their personal account.

One way for banks to break out of this current dilemma may be to shift their focus. This approach is already working for fintech challengers. Instead of focusing solely on transactional products or in-person services, they worked on understanding customer workflows and solving digital pain points. In the process, they have captured the imagination and the pocketbooks of small business owners.

If your bank has prioritized small business customers, or plans to, the best way to make this shift is by focusing on the business owner. Start with this simple question: What do you need from your bank to make meaningful progress with your business?

Their response likely won’t have anything to do with your existing products or services. Instead, they may share a problem or pain point: I need help tracking which customers have paid me and which have not.

There’s no mention of products or account features like fees, balance requirements and e-statements. A response like this reminds us of the quote popularized by Harvard Business School Professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

In our case, it goes something like this: Business owners don’t want a list of transactional ranges, fees or digital banking tools. They want to know if their bank can help them better track and accept customer payments, so they can maximize their time running their business.

Increasingly, the process of accepting payments is moving from in person to online. But when small business owners turn to their financial institution for assistance, the bank lacks a simple solution to meet this fundamental need.

This leaves the business owner with four options for moving forward — options that require either minimal involvement or no involvement from a bank.

  1. If a small business decides that it’s not worth dealing with cards, they can simplify their receivables by only accepting cash and checks, closing themselves off to customers who prefer to pay in other ways.
  2. If a small business decides to accept credit cards, it can accommodate more paying customers, but must now track payments across bank statements (for checks) and external payment tools (for credit cards).
  3. If a small business relies on external invoicing or accounting tools, it can invoice and accept digital payments, but must now track payments across multiple platforms and reconcile those funds back to its bank account.
  4. If a small business consolidates all of its financial needs with one provider like a fintech challenger, they can resolve the complexity of dealing with multiple tools and/or platforms but lose out on the expertise and high-touch support of a business banker.

The two middle options involve a bank at the outset but can often lead to reduced deposits over the long term. Over time, fintech challengers may disintermediate banks by offering similar, competing products like integrated deposit accounts. The fourth option, born out of frustration, removes the bank entirely from the relationship.

Clearly, no option listed above is ideal. Nevertheless, it is still possible to help the business owner make progress with accepting digital payments. And, even better, there is an emerging  solution for small business owners that may lie with your most straightforward business product: your small business checking account. Watch out for part two to learn more.

How Community Banks Compete on Digital Account Openings

Written by

In 2019, over half of all checking accounts were opened via digital channels. In 2020, this number rose to two-thirds.

In 2019, megabanks and digital banks were responsible for 55% all checking applications. In the first three months of 2020, this figure reached 63% — and climbed to 69% in the next three months.

Meanwhile, community banks and credit unions accounted for 15% of applications in 2019, and even fewer than that in the six months of 2020. What’s happening here?

It’s a trend: More accounts are being opened online. But digital account openings are only one piece of a steady shift in the financial services industry, one where consumers do more over online and mobile channels. Megabanks and digital banks are riding this wave, using powerful online offerings to draw consumers away from smaller institutions.

Moneycenter banks have strong digital operations that allow them to expand into communities where they may not have a single branch. Digital offerings have also opened the door for new players like online-only challenger banks, big tech companies and fintechs that are successfully luring in younger customers with payments, investing and even cryptocurrency services. Make no mistake: if community banks aren’t already in direct competition with these digital players now, it’s only a matter of time before they are.

Who Are The New Players?

In the past, community banks’ primary competitors were primarily each another or a nearby regional bank. Today, technology is redefining what it means to be a financial institution, and thereby reshaping the competitive landscape.

Big tech heavyweights like Facebook, Alphabet’s Google, Apple, and Amazon.com have become increasingly involved in financial services in recent years. Their efforts are growing in scope: Google, for example, launching Google Plex, which includes a checking account. Most likely, these firms believe that over time, their expertise in the areas of data and software development will yield a natural advantage over incumbent financial institutions.

Online-only startup banks (also known as challenger banks or neobanks) like Chime and Varo Money are also proving to be a legitimate concern. While Varo’s strategy included obtaining a full-fledged banking charter, which it received in July 2020, Chime relies on partner banks to manage their deposits. And just because they’re startups, doesn’t mean they’re small; Chime boasted 12 million users as of the end of 2020 — 4.3 million of whom identified it as their primary bank.

How Community Banks Compete

As the marketplace evolves, so do consumer expectations. With Amazon and other on-demand services at their fingertips, consumers have become accustomed to digital experiences that are fast, seamless, and personalized.

To compete with megabanks, tech companies and challenger banks for digitally-savvy customers, it’s essential that community banks consider the following strategies:

Invest in speed and reliability
Digital banking solutions need to be fast and reliable to satisfy the high standards that consumers have come to expect. This means efficient processes, minimal to no downtime and speedy customer service. Technology that integrates with your core in real time is key to accelerating customer onboarding and boosting overall user experience.

Play to key strengths
Community banks should lean into the areas where they shine by catering to customers’ personalized needs. Banks should also position their products according to market demand and digital best practices, and configure them for strong customer experience and institutional outcomes.

Seek out the right technology partners
The difference between a good and bad technology partnership is significant; banks often end up disappointed with the performance of a digital solution. To avoid this, it’s important to extensively reference-check technology providers and inquire about the actual delivered (and not theoretical) return on investment of a solution.

Building a Digital Transformation Strategy

As digital banking becomes the norm, it has prompted a massive shift in the competitive landscape. Yet with the daunting task of digital transformation ahead of them, what’s the best place for community banks to start?

One impactful area to focus on is digital account opening. In fact, 42% of banks and 35% of credit unions say they are very interested in fintech partnerships that prioritize digital account opening solutions. Partnering with an account opening provider can help small and mid-size financial institutions position themselves favorably as consumers continue to adopt digital banking.

Retail Checking Realities

Written by



Forty percent of retail checking relationships are unprofitable, so crafting retail checking accounts that deepen customer relationships, drive deposit growth and enhance the bottom line is a challenge faced by most financial institutions. How can bank leaders tackle this issue? In this video, StrategyCorps’ Mike Branton shares two common mistakes banks make regarding their retail checking products. He also shares his thoughts on enhancing the appeal of checking products and explains technology’s role as a deposit driver.

  • Driving Deposit Growth
  • Why Big Banks are Winning Customers
  • Making Checking More Profitable

 

What if Amazon Offered a Checking Account?

Written by


Amazon Prime, Video, Music, Fresh, Alexa—all loved by many, but would consumers also care for an Amazon checking account? One recent survey says that, yes, a subscription based, value-added checking account is the best thing since free two-day shipping.

In a study conducted by Cornerstone Advisors, consumers were asked about their banking attitudes and behaviors and presented with this account option:

“Amazon is thinking of offering a checking account. For a fee of $5-10 a month, the service will include cell phone damage protection, ID theft protection, roadside assistance, travel insurance and product discounts.“

Forty-six percent of “Old Millennials” (ages 31-38) and 37 percent of “Young Millennials” (ages 22-30) say they would open that account. Of those who say they would open the account, almost a quarter say that they would close out their existing checking accounts—most likely with a traditional bank.

Amazon-checking-1.png

When the same responders were asked about a free checking account from Amazon, without the bundled services, interest in opening the account is lower.

Amazon-checking-2.png

“This is music to Amazon’s ears,” says Ron Shevlin, Director of Research at Cornerstone Advisors. “Why would they want to offer a free checking account when they can bundle the services of various providers on their platform—merchants and financial services providers—and charge a fee for it. A fee that consumers are willing to pay for.”

When asked about the hypothetical Amazon account stated above, 73 percent of 30-somethings say they would definitely switch or would consider switching accounts if their primary financial institution offered a checking account with those valuable services. Sixty-four percent of 20-somethings said the same.

Account-Switch.png

Which of the age segments has the most fee based accounts—millennials, Gen Xers or boomers?
About three in four (77 percent) of all survey respondents have a free checking account. Of the millennial segments, 31 percent have a fee-based account. That number is actually less among Gen Xers and boomers—22 percent of Gen Xers are in a fee-based checking account, and boomers report in at only 12 percent.

As loyal users of subscription services, millennials are accustomed to—and willing to pay for—value in order to get something valuable in return. They recognize that you usually get what you pay for, so what you get for free probably isn’t worth much. Even worse, many associate free accounts with the fine print fees you’ll inevitably end up with anyway. And customer reviews on hidden fees will always be 0 out of 5 stars.

Turns out, among those surveyed with a free checking account, nearly every account holder paid at least one fee in the prior year.

Fees-Paid.png

Recommended for You
When survey respondents were asked how many friends and family they have referred to their primary FI over the past year, results show that more people with fee-based checking accounts are referring their primary FI than those with free checking accounts. This is true across each generational segment as well as each type of institution (megabank, regional bank, community banks and credit union). Plus, they grew their relationship by adding non-deposit products.

“Among fee-based account holders, 58 percent referred friends/family, and 43 percent added non-deposit products,” says Shevlin. “In contrast, among free checking account holders, 44 percent referred friends/family, and just 27 percent added non-deposit products.”

In short, the results of customers’ relationships with fee-based accounts are positive, for them and the bank:

  • Nearly half of the millennial age segment say they’d opt for a fee-based account with value added services from Amazon.
  • Less say they’d open a free account from Amazon.
  • Almost 75 percent would at least consider switching accounts if their primary FI offered this same Amazon-type checking account.
  • Millennials beat Gen Xers and boomers in having the most fee-based accounts.
  • More people in fee-based accounts are referring their bank than those in free accounts.

According to Shevlin, “The prescription for mid-size banks and credit unions is simple: Reinvent the checking account to provide more value to how consumers manage their financial lives.”

For more insights about how to reinvent your checking accounts and thrive in the subscription society, download Shevlin’s free white paper, commissioned by StrategyCorps, at strategycorps.com/research.