Use Good/Better/Best for Checking Success

checking-accounts-10-28-16.pngShop for a new car, a cell phone plan, a cable TV package or a major appliance these days and you’ll find one consistent and very successful product strategy–Good/Better/Best (GBB).

GBB is a three-tiered strategy conceptually defined as follows:

  1. Good: A basic level of value for price sensitive customers. Good offers a minimal amount of added value to differentiate yourself from your competitors and/or to marginally satisfy comparison shoppers. For example, coach class airline tickets would fit in this category.
  2. Better: An in-between level of value for customers who appreciate some level of value and are willing to pay a certain price to receive it, because they are still a bit price sensitive. The amount of value added above Good depends on the product type and marketplace, but the incremental level of value must be noticeable. For example, business class airline tickets would be better than coach but not as expensive as first class.
  3. Best: An advanced level of value for those customers who are actively looking for maximum added value. Price sensitivity is not a priority. The amount of value added above Better has to be all that is economically possible to add and still maintain acceptable profit margins or strategic goals. First class airline tickets would be a Best option when flying.

Every successful GBB design works when the product offerings build on each other. Your Good product is fundamental. Better is Good plus more. Best is Better plus more. GBB provides choices by comparison, easily showing how the price changes when different features are added or subtracted. As a result, buyers will be content that they decided to buy only as much as they needed. The power behind GBB is simplicity and familiarity.

While buyers appreciate choice, too many choices are counterproductive. The paradox of choice theory holds that too many options discourages rather than encourages buyers to buy. Why? Because it increases the effort that goes into making a buying decision. So buyers decide not to decide and don’t buy your product. Or if they do buy, the effort to make the decision often diminishes from the enjoyment derived from the product. In short, buyers do not respond well to choice overload and GBB keeps it simple. It’s very familiar to think in terms of three when buying things. Popular use of GBB product design by retailers for commonly purchased items has conditioned the typical buyer to be at ease with this product design.

GBB simplicity also works well for the sellers of the product. There are only three options to understand and communicate to a buyer. Plus, sellers feel credible as GBB appeals to a wider market, providing something for everyone without requiring everyone to just buy the premium option.

So how does this all relate to your consumer checking line-up strategy? Actually, it’s very natural, because you can align your GBB checking products with the three types of checking account buyers:

  1. A fee averse buyer wants free checking if it’s available or the cheapest account you offer.
  2. A value buyer is most focused on account benefits and is willing to pay for the account if there’s a perceived fair exchange of value.
  3. An interest buyer demands some yield on their deposits and also expects to be rewarded for being a productive or loyal customer.

In addition, nearly all three checking products under a GBB structure generate enough average annual revenue to cover the annual costs to service a typical checking account relationship, except for totally free checking.

Here’s how that breaks down, along with the comparative average annual revenue from each GBB checking product type and typical distribution of these accounts in a checking portfolio:

Product Strategy Buyer Type Checking Product Type Average Annual Revenue Percentage Range of Total Accounts
Good Fee Averse Totally Free
Conditionally Free
(minimal requirement to avoid fees)
Better Value Flat Monthly Fee $563 25%-40%
Best Interest Interest $636 10%-15%

Source: StrategyCorps’ Brain database tracking the financial performance of nearly 5 million checking accounts. Average annual revenue is the total of all checking related fees (including debit interchange) per respective account type and the allocated net interest income from the account type’s respective annual average DDA balance.

So what does a GBB-based checking line-up look like for a financial institution like yours? Here’s a sample GBB checking line-up in action as shown on sales/marketing materials.

As your financial institution works to have a more successful checking line-up that’s modern, customer engaging, competitively different and optimally financially productive, learn from the successful product design strategy of GBB. Don’t overthink it, over complicate it or, in general, overdo it. Your customers will be happier and your bottom line will be healthier.

What to Do About the 65% of Checking Customers Making You Money

In a previous article, I wrote about the challenge of how to handle unprofitable customers, headlined “What to Do About the 35% of Checking Customers Costing You Money.” The logical follow-up question is what to do with the remaining 65 percent.

Below is the composition of a typical financial institution’s checking portfolio, based on the relationship dollars (both deposits and loans) each of these segments represent, and the revenue generated by household by segment.strategycorps-chart-5-11.png

Super: household produces annual revenue over $5,000. Mass Market: produces $350 to $5,000 in revenue. Small: produces $250 to $350 in revenue. Low: produces less than $250 in revenue. Figures are based on the average bank in StrategyCorps’ proprietary database of more than 4 million accounts.

It is commonly thought that the 80/20 rule applies to relationship dollars and revenue for checking customers, where 80 percent of each is generated by 20 percent of customers. However, if you were to add up the Super and Mass columns for the relationship dollars and revenue segments, the “rule” is closer to 98/2 and 97/3, respectively.

Although they make up just over 10 percent of customers, Super households generate the highest percentage of both, 63 percent of relationship dollars and 57 percent of checking revenue for a typical financial institution. Mass households represent the largest relationship segment at 55 percent of customers, but generate less than their pro-rata share of relationship dollars and revenue.

Clearly these two segments, especially the Super segment, are what other financial institutions are looking to steal away with all kinds of marketing messages and incentives, and even some very targeted, prospective individual sales efforts.

A deeper dive into the profile of each segment reinforces why these customers are so sought after by competitors.

Segments Super > $5,000 Mass $350-$5,000
Distribution 10% 55%
Per Account Averages Averages
Relationship Statistics    
DDA Balances $28,079 $5,746
Relationship Deposits $63,361 $6,323
Relationship Loans $68,250 $4,542
Total Relationships $159,890 $16,611
Revenue Statistics    
Total DDA Income (NII + Fees + NSF) $1,349 $448
Relationship Deposit NII $2,367 $231
Relationship Loan NII $2,654 $171
Total Revenue $6,370 $850
Account Statistics    
Have More Than One DDA 73.2% 52.8%
Have a Debit Card 46.2% 65.1%
Have Online Banking 26.0% 29.6%
Have eStatement 16.0% 17.5%
Debit Card Trans (month) 8.4 15.7
Have a Relationship Deposit 74.3% 52.8%
Have a Relationship Loan 56.3% 25.4%
Have Both a Deposit and Loan 44.4% 15.8%
Average Age of Account 5.4 3.8
Average Age of Account Holder 57.0 51.2

The challenge: What should your financial institution do to retain these Super and Mass relationship segments that make up 65 percent of customers and yet are responsible for nearly 100 percent of relationship dollars and revenue?

A common response from bankers when asked this question is their stated belief that people in these Super and Mass segments are long-term customers who are already well-known. However, the data in the next to last row of the chart shows that the average age of the accounts in these two segments is only about five and a half and nearly four years, respectively, so they really aren’t long-term customers on average.

Another popular view is that these customers are already being taken care of. When asked to clarify, the response is typically something general about customer service. Rarely is the response that these customers are being provided with the best products and top level service at the financial institution, or that investments are being made in these customers that are above and beyond what is invested in overall retention efforts. And in too many cases, many community financial institutions don’t have the information organized to even identify which customers are in what segment.

It’s understandable that with today’s tight interest rate margins, compressing fee income and rising operating costs, it’s difficult to make a business case for above average investment in customer retention. However, with an overcrowded competitive marketplace and the commoditization that’s occurring from digitizing retail banking, taking for granted that Super segment customers won’t move is riskier than making the incremental financial investment to do something extra to retain them.

The math on this is straightforward—losing one average Super segment household that generates revenue of nearly $6,400 would require investing in the acquisition of 7.5 average Mass segment households, 29 Small segment households or 88 Low segment households.

The biggest banks know this and are, on a relative basis, out-investing community financial institutions through better mobile and online products, more attractive acquisition incentives and aggressive pricing campaigns in the Super and Mass segments.

While it may feel nearly impossible to invest more in existing Super customers, the cost of not doing so will be much more.

For consumer checking financial performance on all the relationship segments (Super, Mass, Small and Low), a more detailed executive report is available if you’d like more information.

What to Do About the 35% of Checking Customers Costing You Money

Consumer checking, while the simple hub product for most retail deposit and loan relationships, produces some not so simple challenges related to financial performance.

Here’s the composition of a typical financial institution’s checking portfolio, based on the revenue generated by a household relationship. “Super” customers generate the highest percentage of a typical bank’s revenues although they make up only about 10 percent of its customers. Super customers also make up the highest percentage of overall relationship dollars, meaning they have more combined deposit and loan balances with the bank.strategycorps-chart-5-11.png

Super: household produces annual revenue over $5,000. Mass Market: produces $350 to $5,000 in revenue. Small: produces $250 to $350 in revenue. Low: produces less than $250 in revenue. Figures are based on the average bank in StrategyCorps’ proprietary database of more than 4 million accounts.

The challenge: What to do with the Small and Low relationships that make up 35 percent of customers yet represent only 1.6 percent of all relationship dollars and 2.9 percent of revenue?

A deeper dive into the profile of these segments is enlightening.

Segments Small $250-$350 Low <$250
Distribution 9% 26%
Per Account Averages Averages
Relationship Statistics    
DDA Balances $1,561 $682
Relationship Deposits $444 $117
Relationship Loans $161 $32
Total Relationships $2,166 $831
Revenue Statistics    
Total DDA Income (NII + Fees + NSF) $160 $62
Relationship Deposit NII $16 $4
Relationship Loan NII $6 $1
Total Revenue $182 $67
Account Statistics    
Have More Than One DDA 28.9% 14.5%
Have a Debit Card 71.4% 57.1%
Have Online Banking 27.3% 22.0%
Have eStatement 17.1% 13.9%
Debit Card Trans (month) 13.3 5.0
Have a Relationship Deposit 31.5% 17.9%
Have a Relationship Loan 7.1% 2.7%
Have Both a Deposit and Loan 2.5% 0.7%
Average Age of Account 3.1 3.4
Average Age of Account Holder 48.9 48.8

Obvious is the lack of revenue generation from these segments given average demand deposit account (DDA) balances and relationship deposit and loan balances on an absolute dollar basis and a comparative basis to the Mass and Super segments.

Less obvious is that the other revenue-generating (debit cards) or cost-saving activities (online banking, e-statements) of the average customer in the Small and Low segments is not materially different from the Mass and Super relationship segments. For some products, like a debit card, the percentage of customers in the Small and Low segments who have one is higher than Mass and Super segments.

The natural response from bankers when confronted with this information is, “let’s cross-sell these Small and Low relationships into more financial productivity.” This is well-intentioned, but elusive and arguably impractical.

First, for many consumers in these relationship segments, your FI isn’t their primary FI, so they are most likely Mass or Super segment customers at another institution. Second, if you are the primary FI, these segments simply don’t have financial resources or the need for additional financial products beyond what they already have today. At their best, these are effectively single service, low balance and low or no fee customers. Therefore, traditional cross-selling efforts either compete unsuccessfully with the primary FI’s cross-selling efforts or don’t matter because there aren’t available financial resources to be placed in other products.

How then does your FI competitively and financially engage with these Small and Low relationship segments to improve their financial contribution by increasing the DDA balances, relationship balances or generating more fee income? The answer is to relevantly offer them a product that impacts how they bank with your institution.

More specifically in today’s marketplace, this relevant offering is accomplished by being a bigger part of your customers’ mobile and online lifestyle. Consumers of all types are in a relationship with their smart phone, tablets and computers. A FI’s checking product has to be a bigger part of that relationship. It can’t just be another online or mobile banking product they can get at pretty much any FI. For the unprofitable customers who have a primary FI somewhere else, the mobile and online offerings have to be engaging and rewarding enough to move deposit balances to your bank or buy more products from your bank to generate more revenue.

For those unprofitable customers who simply don’t have the financial resources to aggregate deposits or be cross-sold, the mobile and online banking solutions have to include value worthy enough to willingly pay for. Why? Because generating recurring, customer-friendly fee income based on non-traditional benefits or functionality is the only way you’re going to make them more profitable. Top retailers like Costco, AAA, Amazon and Spotify understand this retailing principle, which is transferable to FIs if they will design and build their checking products like a retailer would instead of a banker.

For consumer checking financial performance on both the Small and Low relationship segments as well as the Super and Mass ones, a more detailed executive report is available if you’d like more information.

The Battle Is Back On for Checking Customers

As I was driving to a meeting the other week listening to the radio, I heard back-to-back commercials from two different banks about checking accounts. The first was a super-regional bank promoting that they would pay me $250 to move my checking account to them. The second, one of the mega banks (a top five bank in asset size) promoted a similar message but upped the incentive to $300 to switch.

When I got home later that day, I found a direct mail offer from another mega bank upping the incentive to $500.


I looked closer at the conditions of these incentives and found a similar nuanced strategic objective. These banks (and a few others I found online making similar offers) are clearly not returning to the days of “open a free account, get a free gift.” They aren’t looking for just consumers willing to switch their account to a free account with no commitment other than the minimum balance to open requirement (usually less than $50).

Rather, they are looking for those willing to switch their relationships that require a certain level of funding and banking activity (direct deposit, mobile banking activation, etc.) to earn part or all of the cash incentive. And these banks aren’t offering a totally free checking account.

Recognizing this as the objective, I perused a major online marketing research company to look for competitive responses from community financial institutions and found hardly any similar monetary offers. Those that were similar were mainly promoted just on their respective websites.

So what do these large banks know about these types of offers that community financial institutions don’t know (or deem important enough) to mount a credible competitive response? Reading and listening to presentations made to stock analysts by big bank management reveal that they know they can simply out market smaller community financial institutions, which don’t have or want to devote the financial resources for incentives at these levels.

They also know these smaller institutions’ customers, namely millennials, have grown disenchanted with inferior mobile banking products, and are looking for superior mobile products that the larger banks typically have. They are capitalizing on a growing attitude taking place in the market regarding consumers who switch accounts — 65 percent of switchers say mobile banking was extremely important or important to their switching decision, according to a survey by Alix Partners.

So by out-marketing and out-innovating retail products, larger banks know the battle is on to attract profitable or quick to be profitable customers, traditional ones right down to millennials who never set foot in a branch, by offering an attractive “earned” incentive to move and providing better mobile products along with a wider variety of other retail products and services.

Now community bankers reading this may be thinking, “That’s not happening at my bank.” Well, you better double-check. Last year, 78 percent of account switchers nationally were picked off by the 10 largest U.S. banks (and 82 percent of younger switchers) at the expense of community banks. Community banks lost 5 percent of switcher market share and credit unions lost 6 percent, according to Alix Partners.

And once these larger banks get these relationships, they aren’t losing them. Take a look at JPMorgan Chase & Co. Chase Bank has driven down its attrition rate from over 14 percent in 2011 to just 9 percent in 2014 (an industry benchmark attrition rate is 18 percent). Also from 2010 to 2014, it has increased its cross-sell ratio by nearly 10 percent and average checking account balances have doubled.

With this kind of financial performance (not only by Chase but nearly all the top 10 largest banks), a negligible competitive marketing response from community institutions and a tentativeness to prioritize enhancing mobile checking related products, their cash offers from $250 to $500 to get consumers to switch accounts is a small price to pay.

Combining this with well-financed and marketing savvy fintech competitors also joining the battle to get customers to switch, the competitive heat will only get hotter as they attack the retail checking market share held by community institutions slow to respond or unwilling to do so.

So community banks and credit unions, what’s your next move?

Putting the Retail Back in Retail Checking Design

mobile-rewards.jpgAsk bankers how they go about designing their retail checking products and most will answer with much more of a focus on the checking part than the retail part. Don’t get me wrong, the checking part is essential. The account has to be operationally secure, reliable and accurate in terms of supporting transactions and related information. However, customers have overwhelmingly shown they aren’t willing to pay for just checking. To be different, to generate much needed fee income and to really change the game of checking, banks must focus more on the retail part of retail checking. Here’s why.

With mobile and online banking growing rapidly, customers’ face-to-face interaction with bankers is becoming less frequent. As a result, customers’ experience with and connection to the bank is more tied to their direct interaction with their checking product and what that product delivers. Plus, the checking account continues to be critically important as the primary fee income vehicle on the retail banking side.

This begs the question, how does your bank design its retail checking accounts to be so relevant and engaging to your customers that they will gladly pay a fee for them? This is where the retail focus in the design of your checking products comes into play—your bank has to deliver to your customers a more meaningful and emotional experience with the product itself. It seems like the banking industry has talked forever about being retailers. Yet, very few banks apply basic retailing principles to product design. Even fewer have been willing to commit to doing what they need to do to experience the success of top retailers. For the last decade or so, it was easy to understand why—free checking and overdrafts were the gift that kept on giving, so thinking about retailing in regard to product design and relationship-building took a back seat.

To learn how to incorporate retailing to make your checking accounts more relevant and engaging so that your customers willingly pay for them, just take a look at the best retailers outside the banking industry. The online shopping websites LivingSocial and Amazon make incredible emotional connections with their customers yet rarely interact with them face-to-face. The customer relationship is almost entirely defined through the design of the product and the value it delivers. In most cases, the only interaction with the customer is by email.

So the next question begging to be answered is what retailing best practices are naturally transferable to incorporate into your checking products? There are many possibilities, but there are primarily three that easily fit into the design of a checking account and aren’t so costly as to make the monthly fee non-competitive. These three are local, mobile and social.

First, nearly every geographical market today is promoting the local mindset—thinking, supporting, buying local, etc. Banks already know this power of local as they already classify themselves as community banks (even the mega-banks employ this positioning). So it is very logical to extend this role to becoming a community connector. This means connecting your consumer customers who buy things locally with your small business customers who are looking to grow their sales.

Second, mobile delivery of banking products/services is here to stay. Banks that think like a top retailer already know that three of the top four ways consumers want to use their mobile phones involve shopping and coupons. (The Federal Reserve reports on “Consumers and Mobile Financial Services,” March 2012 and March 2013, provide a wealth of information about how consumers want to use their mobile phones, not how banks think they want to use their mobile phones.)

So combining these local and mobile best practices into a checking benefit like a local merchant discount network that delivers the discounts via a customer’s mobile phone is not only a difference maker but a game changer. Think about it—your retail customers talking about how their checking account saved them money on purchases and your small business customers seeing how your bank helped grow their business. Plus, it’s already proven that your customers will gladly pay a monthly reasonable fee to get access to attractive local merchant discounts, around $6 per account.

This leaves the social best practice. To be clear, we’re not talking about social media. What we’re referring to is purposeful communication that is unexpected, unselfish and engaging. The typical social experience of checking customers is they open an account and the bank doesn’t meaningfully communicate with them again until the customers have some type of issue or problem, or they come back in the branch. Smart retailers already know the power of purposeful communication, sending periodic emails to customers that make offers that usually save them money or at least recognize them as valuable customers.

If you want to put the retail back in retail checking, then study up on how other top retailers are using the local, mobile and social best practices and determine how your bank can incorporate these features into your checking accounts. Doing so will make your checking accounts different, change the game for your consumer and small business customers, and provide ample customer-friendly fee income that every bank needs.

*This article has been updated from an earlier version.

What Do Costco, Verizon and AAA Have to Do with Checking Accounts?

12-16-13-StrategyCorps.pngWhen most financial institutions think about designing consumer checking accounts, they usually check out what their financial institution competitors are offering. The result is a homogenized product that customers don’t think is worth paying for. There are companies outside of the banking industry that have tapped into powerful, appealing, lifestyle-based value propositions in the products and services they provide. And the value propositions of these products and services are applicable to designing and building consumer checking accounts that can compete on a superior level, engage customers more broadly and generate sizeable amounts of fee income.

Let’s start with Costco Wholesale Corporation (and include their competitive brethren Sam’s Club and BJ’s Wholesale Club). These warehouse clubs collectively have more than 120 million customers who each pay $50 to $100 per year just for the opportunity to do business with these companies. So what’s so compelling that consumers will pay just to be able to shop here? Clearly it’s the potential to save money when they have to spend it on everyday items and other needed purchases. Costco and others have proven that consumers are very willing to pay to save, as long as the anticipated savings exceeds the upfront fee for the opportunity to do so.

Next, how does Verizon Communications Inc. fit in? They (and other major mobile phone carriers) know how important the cell phone is to consumers, and how they wince at the thought of not having an operable mobile phone at their immediate reach. These companies have connected with this mobile phone lifestyle by ensuring a non-working phone is only a temporary situation. How? They provide phone insurance to more than 60 million consumers who each pay $5 to $12 per month to have it. Verizon and other mobile carriers have verified that consumers love their mobile phones so much, they are willing to pay to ensure that they won’t go more than a few hours without having a replacement phone at their fingertips.

And what about the membership in auto clubs known as AAA? Although AAA has recently expanded offerings to merchant discounts and AAA auto repair stores, the core service in the minds of consumers is roadside assistance. AAA has tapped into the desire for peace of mind on the part of the consumer who doesn’t want to get stranded somewhere with a car they can’t drive. AAA has demonstrated that this personal security and safety benefit resonates with consumers as they have more than 50 million people that each pay $60 to $160 per year to be a member.

By now, hopefully, you’re seeing a pattern emerge. These are just three examples of non-banking companies with product and service-based value propositions that connect well with customers—millions and millions of them are willing to pay fees for these products and services.

So what’s that got to do with a consumer checking account? Well, unless you’ve cracked the code on a unique checking account that resonates so well with the majority of your customers that they happily pay fees for basic banking services, then finding other benefits worthy of a fee should be at the top of your to-do list for strategic and financial reasons.

And the beautiful thing about studying these non-banking companies is that these kinds of benefits can fit very neatly and naturally into a checking product, complementing your traditional banking benefits.

Plus, banks can deliver these types of benefits (and others) conveniently online and through mobile apps, which are clearly the ways consumers want benefits delivered these days. Mobile and online delivery also align with the banking industry’s rapid movement towards mobile and online banking.

So as you try to figure out how to make your consumer checking accounts different, more connected to your customers’ needs and relevant enough that they will actually pay for them, look at companies like these and others outside the banking industry that have proven this case with millions of consumers. Don’t stay locked into traditional banking benefits that customers won’t gladly pay for. Look for providers of these types of benefits that have the ability to deliver enhanced products and services to your financial institution that can generate some badly needed fee income and product differentiation.

Making the Checking Relationship Profitable Again

10-14-13-Strategy-Corps.pngIn April, I addressed the financial state of consumer checking. In summary, about 40 percent of consumer checking accounts are so “shallow” that they don’t generate enough income (net interest income and fees) to cover the estimated annual costs to maintain and service the account. Plus, this 40 percent only contributes 2.7 percent of all checking-related revenue and 1.4 percent of total relationship dollars.

Here are a few more numbers to define these shallow, single service, low balance, no/low fee relationships:

  • only 3 percent have a loan
  • the average checking account balance is $812
  • the average relationship deposits (other than checking) and loans total amount is $236
  • the average annual fees are $55 ($45 from overdrafts)

These shallow accounts occur with all checking account types—free, interest and relationship accounts with the overwhelming majority of these account types being free ones.

So at a time when financial institutions, especially community ones, need more core profitability from their retail products and services than ever before, what has to be done to deepen the relationship of checking customers?

Most financial institutions are focused on the cost-cutting angle—lowering the underlying costs to service these shallow customers to get more of the existing level of revenue to fall to the bottom line. This is a good start, but you can’t cost cut your way to prosperity.

Financial institutions also need to increase the revenue producing capacity of these shallow accounts as well. This means better cross-selling results and more fee income. So let’s take a look at each of these.

Cross-selling is as elusive as Bigfoot and the Loch Ness Monster. A recent study by Deloitte shows the numbers are stacked against cross-selling success because the actual number of customer candidates to be practically cross sold is significantly limited.

Eighty-one percent of customers average having only one product at their primary bank. These shallow relationships are challenging to deepen. Forty-two percent are identified as basic users. They are young or middle aged, have lower earnings, and simply don’t have the personal financial need to respond to cross-selling efforts. Value shoppers make up 39 percent of customers. They are aged 45-plus, moderate to high income, and they tend to shop for the best value to meet their mature banking needs. They don’t want to have all of their business at one institution due primarily to not trusting this primary institution. So they don’t have the behavioral motivation to respond to cross-selling unless they’re won over with active promotion and the best pricing deal possible, which strains profitability.

Should financial institutions then abandon cross-selling efforts to these groups? Of course not, but the arithmetic reality of the financial and motivational needs of these groups has to be factored in. When doing so, cross-selling is not the single source method to fix the 40 percent of total accounts comprised of unprofitable, shallow relationships.

So this leaves generating new fee income from these relationships. One popular technique is to just raise fees or impose more conditions on your customers to avoid a fee, but provide no additional value in terms of services or product benefits. Then you wait and see which customers stay and which ones leave from taking this action. This is not really fixing these relationships. Rather, it is effectively firing them, a practice employed primarily by the mega banks, which have much more diversified sources of non-interest income to cover the increased attrition. This technique doesn’t work well for community and regional institutions.

Another technique growing in popularity and employed by more progressive thinking and retail-focused institutions is to generate new fee income by actually enhancing the value of the benefits delivered in retail banking products, namely mobile and online banking and checking accounts. To successfully charge customers fees, these benefits must not be transaction-centric or branch-centric. Customers don’t like to pay for (and competitively don’t have to pay for) basic banking transactions. These benefits must be customer lifestyle-centric, meaning that they go beyond basic banking transactions and are centered on relevant things customers do in their daily lives, so they willingly pay for them.

When delivered in appealing, easy-to-use and convenient mobile and online platforms, customers have shown that they will gladly pay fees for these lifestyle-centric benefits (like local merchant discounts, travel savings, cell phone protection and roadside assistance). How much? On average, financial institutions we work with are generating about $60 per customer annually from 40 percent of the consumer checking portfolio. This means a lot of new customer-friendly fee income for these financial institutions.

And it is this additional $60 of customer-friendly fee income that not only deepens the relationship by providing services more relevant to customers’ lifestyles, but also adds more revenue to move these unprofitable, shallow accounts over or, if not over, at least closer to the financial break-even line.

So to make checking relationships more profitable, continue your efforts to cross-sell other services and products, realizing the customer-based realities of being successful. But also focus on making your mobile, online banking and checking products better by expanding beyond basic banking transactions and smartly charging a reasonable fee for value. The payoff will be more well-rounded and mutually beneficial relationships.

The Battle for the Bank Account: And Why the Banks Will Probably Lose

Brett King, best-selling author and disruptor, explores the end-game in the emergence of the mobile wallet and what it means for the humble bank account. With more than 60% of the world’s population without a bank account, with the ubiquitous nature of mobile phone handsets and the increasingly pervasive pre-paid ‘value store’ – will banks still be able to compete? When you can get your salary paid directly onto your phone, when your iTunes account doubles as a prepaid debit card and when you can use Facebook to send money – will there be any need for traditional retail banking in the future?

Does Checking Need a New Name?

6-19-13_StrategyCorps.pngChecking accounts have been around in some form or fashion since 100 B.C. when the Roman argentarii (money changers) issued an early form of checks to their clients. Checking accounts then made their way to the U.S. during the early 1700s as colonists adopted the popular checking system brought over from Europe. Then in the early 1860s, The National Banking Acts laid the groundwork for the national check clearing system.

Yet today, the main reason for calling this account a checking account—the writing of checks—seems to be losing its descriptive accuracy. Checks have been declining in importance and in volume for the last decade or so (down from 16.9 billion in 2000 to 5.1 billion in 2012 per the Federal Reserve). Ask folks 30 years old or younger about checks, and they’ve either never written one (and don’t even know how to write one) or could count the total number they’ve written on their fingers and toes.

As a frequent attendee, exhibitor and presenter at retail banking conferences, I get to talk to lots of bankers and listen to a lot of speakers. While the term checking is still commonly used (and the acronym DDA for demand deposit account, to a lesser extent), everyone in retail banking seems to be struggling with what else to call it. I’ve heard terms like the generic bank account and the slightly more descriptive transaction account and debit account.

However, these names fall as short as the term checking does. The drawback with these alternative names is they are way too bank- and functionally-centric, employing terms generally unrecognizable by the public such as debit and demand deposit.

With alternative banking channels like online banking, online bill pay, mobile banking, mobile deposit and bill pay, smart ATMs and electronic person-to-person payments driving down interaction with real live bankers, the product actually delivering these functions becomes even more the identity and reference point of the customer relationship. The product housing these functions is increasingly the primary connection of your bank customer to your bank. Or as Brett King, the author of the books Bank 2.0 and Bank 3.0, puts it, “Banking is no longer a place you go… it’s just something you do.” And most of the doing relates to typical checking transactions. So the new term for checking must express a more customer-centric purpose of engagement.

But your bank can’t just call it something different and leave it at that. The account must truly be upgraded from ordinary checking delivered in the past. The checking account of today and in the future must deliver much more intrinsic value and convenience than ever before. It must connect with customers better and differently for your bank to be relevant in their lives.

Your customers are already thinking about their checking accounts differently (and using them differently too), so your bank must think about them differently as well, including not only what you call the account but also what it delivers—a relationship-building experience.

Who knows how that will evolve into a new name to replace checking or DDA? Something short, sweet and more meaningful will develop. I have some ideas already on this, do you? If so, let’s compare notes and maybe get this naming issue resolved sooner rather than later!

Why Your Checking Accounts Must Be More Relevant

Strategy_Corps_2-14-13.pngThere’s no debate, the way your customers interact with checking accounts is rapidly changing – dramatic growth in mobile banking fueled by remote deposit capture, continued growth of online banking, and traditional and non-traditional competitors offering alternatives like prepaid cards. Plus, nearly half of consumers check out a bank online before visiting a branch and more and more use social media for expected customer service.

One significant outcome of this is branch traffic steadily declining about 5 percent per year on average, according to Birmingham, Alabama-based consulting firm Bancography. So the number of times your customers and prospective customers interact face-to-face with your employees to experience award-winning, competitively differentiating customer service is decreasing.

This means your bank’s hub deposit-based product, the consumer checking account, must deliver much more stand-alone appeal and built-in value to connect with customers differently and better than in the past for your bank to remain relevant in their lives. So you have to think about the importance of this customer interaction with checking accounts differently than you have in the past.

An interesting way I’ve heard this product relevance explained by a banker is from Ray Davis, CEO of Umpqua Bank, during a keynote presentation at the recent Acquire or Be Acquired Conference. Davis stated the situation this way—banks must find a way to have their customers positively think about their bank when they’re not in the branch interacting with a bank employee.

At StrategyCorps, we think about this a bit differently, yet with the same intended result. Our position is banks must provide a checking account that is so appealing, so good, and so applicable to a customer’s everyday financial activities that the customer would gladly be willing to pay for that checking account. We all know that when you pay for something, you care more about what it delivers. And if it delivers at least what you pay for it (and hopefully more), then that’s a fair exchange of value upon which to build a mutually rewarding, loyal relationship.

So exactly what does such a checking account need to offer to be more relevant? The starting point is the account offers a benefit(s) that naturally fits into a checking account and doesn’t cost so much that the price the customer pays for it is unreasonable. Remember, there’s still enough free checking out there that it remains a reference point in a purchasing comparison by consumers. In other words, it’s highly unlikely that a lot of consumers will pay $25 per month for a checking account, no matter how valuable the benefits it provides when free checking is a viable alternative in the marketplace.

Free checking has also trained consumers to strongly believe that traditional checking benefits need to be free, no matter the amount of intrinsic value of those benefits. So you have to think creatively and differently about how you design your accounts, meaning the inclusion of non-traditional benefits.

Now I know there are some of you who may be shaking your head in disagreement or disbelief or confusion, which is okay. However, the winners of the consumer checking game will be those banks that embrace the fair exchange of value requirement and figure out which non-traditional benefits need to be offered that make checking accounts more relevant to their customers, no matter how those customers decide to actually interact with your bank.