As consumers, we’ve come to expect that financial institutions offer some kind of free checking account. We’ve come to expect it because seemingly every institution in the country offers a free account – even if the account is supported by fees. But there’s been a lot of speculation in recent weeks about whether financial institutions can/should continue offering free checking accounts, and what those accounts will look like moving forward.
Some recent articles include:
- In March BAI’s Banking Strategies ran an article called ‘Inflection Point’ in Checking Accounts saying that “Banks need to get creative when it comes to the most basic of products – the checking account – if they hope to offset the huge losses they will experience down the road.”
- An article titled Is This the Beginning of the End of Free Checking? was posted on Wall Street Journal’s Real Time Economics Blog on June 18, 2009. The article highlights a new checking concept from Probity Financial Services called Probity Checking – where customers willingly pay $19.95/month to avoid fees for overdrafts and foreign ATM usage.
- A few days later, the cover story in American Banker on June 23rd was Free Checking: A Customer Favorite is Re-Examined pointing out that “As scrutiny increases over how free checking works, the business model that underlies what has become an industry standard may have to evolve.”
Most free checking accounts are the same as they always have been. The Probity Checking Account is one example of the checking account evolving. On the other end of the spectrum we’re seeing BancVue, the company behind a popular free rewards checking program used by many community banks and credit unions, promoting it’s latest effort, Kasasa: a program that focuses on bringing consumers “free checking and savings accounts that give back to you in totally new ways.”
This comes as BancVue announced that a Surge in Consumer Acceptance Pushes REALChecking Accounts Past Million-Customer Mark - apparently generating over $10 bil. in deposits through its accounts.
So is free checking here to stay? It’s difficult to imagine that free checking could simply disappear.
This is especially true when we consider that BancVue’s accounts alone are used by more than 600 community banks and credit unions in markets across the country. And these accounts are often perceived as different from other more traditional checking products – which is likely giving some institutions an advantage offering a differentiated product with a higher interest rate. At the same time, these accounts are really an updated version of the familiar free checking product.
In thinking about Kasasa specifically, it will be interesting to see how consumers perceive accounts under the Kasasa product umbrella as the initiative gains traction. Where institutions have historically developed unique names for similar rewards checking products offered by BancVue, it appears as though the Kasasa products all carry the same name (i.e. Kasasa Cash). While it won’t likely be an issue initially, it will be interesting to see what happens when more than one institution in the same market is offering a Kasasa checking account – especially if that account has the same name, but different interest rate at two competing institutions.
At the end of the day, consumers have come to expect free checking. If offerings do become more limited at a local level, consumers know they can turn to the Internet as the accounts are becoming easier to find online - whether it’s through a direct bank like ING Direct, through account finding services like Kasasa.com or CheckingFinder.com, or other venues. And while some institutions may find it necessary to eliminate a free checking product because of costs, others are finding ways to add value beyond being free to the customer (i.e. offering higher interest rates).
While the free checking model we’re used to seeing may not be appropriate for every institution or customer, it sounds like free checking – in some form or another – is here to stay.
Free checking will be slow to dissapear as it seems to be a standard expectation among banking consumers. Given today’s ecenomic climate, I believe that banck need to re-assert savings products and services as a strategy for new acccount acquisition. Banks need to re-establish their position as a savings – supportive brand (BOA’s “Keep the Change” product is a great example.) People, more than ever will respond to a bank that provides simple and painless ways to help them save.
Jeffrey –
There is certainly opportunity in today’s economy for financial institutions to promote savings. And I agree with you saying that people will respond to a bank that provides simple and painless ways to help them save. I’d make the argument that continuing to offer free checking accounts, that are indeed free, is one of the easiest ways to help customers save.
And while it may make sense for some banks to ‘re-assert savings products and serves as a strategy for new account acquisition’ as you say – I don’t think this approach would be successful across the board. Many customers simply aren’t used to saving their money. At the same time, some institutions/employees at those institutions simply aren’t used to helping their customers save.
As a result, institutions that do want to promote savings products and services need to be prepared to educate customers about savings and about the products that can help them save. I think the free checking account will continue to offer institutions a good entry-level product from which to build relationships – with savings-based products being the logical extension from checking.
Hi I’m Gabriel Krajicek, the CEO of BancVue (that is powering the Kasasa accounts).
First off Brady, thanks for the mention in your article, we appreciate it.
I do want to explain one key point of the Kasasa strategy that may not be clear from the outside looking in. You had said, “it will be interesting to see what happens when more than one institution in the same market is offering a Kasasa checking account.”
That is the point! Kasasa is designed to arm community financial institutions with the product superiority and marketing scale to effectively fight back and win against the mega banks. This works best when several community financial institutions fight together against their common, bigger enemy.
So for example, imagine 3 community FIs in a market and imagine it’s a big Bank of America market as well. Individually none of the community banks and credit unions could match BOA (heck, they’ve got Jack Bauer doing the voiceovers in their commercials for goodness sake). But collectively the 3 community FIs can shout a lot louder with their combined marketing budgets than even BOA can in that market. The BancVue marketing team works with each individual FI to understand their market, to deploy marketing dollars, and to make sure that the Kasasa brand never overshadows the community FI’s brand.
This is classic coopetition. A goofy word for when competitors work together for a higher purpose. The reality is that community banks and credit unions have been loosing massive market share to the larger regionals and megas for more than decade. To reverse this trend, we need to provide a bright light in a dull grey world…something to cut through the clutter and give the consumer a real, credible alternative. That bright light is Kasasa a whole new way to bank that marries the bigness of mega bank products with the personal service of a community bank or credit union.
We piloted this strategy in 6 markets several of which have multiple FIs in the same market. The results are ridiculously good. By working together the Kasasa team, a coalition of competitors, is achieving more than the individuals FIs could on their own.
With a successful pilot behind us, expect lots more Kasasa institutions to hit the market in 2010.
Our mission is to help the community bankers and credit unions win the war against the megas. Thanks to Kasasa, we are one big step closer to making that goal a reality.
Gabriel –
Thanks for your comment, and for offering additional information about the Kasasa accounts. We’ll stay tuned for updates about the program.