The New Value of Checking

Thursday, December 16, 2021  |  Megan Cummins

Checking accounts are important to financial institutions for many reasons, and those reasons have shifted over time. Typically, financial institutions have valued checking accounts because:

  • Checking accounts have had a strong correlation with loyalty
  • Checking is often used to leverage cross-sales into a household
  • Checking has been a key source of revenue through overdraft and debit interchange income

According to data collected in the Raddon Performance Analytics program, at the end of 2019, checking fees and interchange made up 86 percent of the average financial institution’s overall net income. That number has decreased to 60 percent as of June 2021. As we continue our journey into the 2020s, these values will continue to shift dramatically as new threats disrupt interchange. But checking will still gain value for a fourth reason – data.

NSF Income Is So Last Century

Times have changed since the 1990s, when the largest source of checking revenue came from overdraft fees. Insufficient funds (NSF) income has been greatly impacted since the start of the 2020 pandemic, largely because consumers had more cash in their checking accounts due to stimulus payments. At the end of 2019, NSF income averaged $73 per household. That number dropped to $50 per household as of June 2021, a decrease of 31 percent. Between government regulations surrounding overdrafts and the pandemic, institutions have become less reliant on NSF income. Some are abandoning NSF fees altogether by introducing “no fee” checking accounts and providing accountholders with transparency to make it easier to avoid them.

Debit Interchange Is Also Being Threatened

Although debit income hasn’t seen a huge impact from the pandemic, there are still threats. According to Performance Analytics data, the average debit card is swiped 21 times per month, up from 18 times per month prepandemic. At the end of 2019, debit interchange contributed 47 percent of an institution’s overall net earnings – down to 39 percent currently.

Consumers have more ways to make payments than ever before. According to a Raddon Research Study in 2021, Moving Money Around, since the start of the pandemic, 25 percent of consumers say they are using person-to-person (P2P) services such as PayPal, Zelle® and Venmo more, and almost half of millennials and Gen Z have replaced debit or credit cards with these services. These numbers are anticipated to grow as more Gen Zs come of age.

Another disruptor is the explosion of buy now, pay later (BNPL) services, with 28 percent of consumers saying they have tried using a service like Klarna, and an overwhelming 61 percent of millennials say they have used this service in the past 12 months.

Checking Drives Loyalty and Cross-Sales

According to the Raddon Survey Relationship Survey, loyalty is strongly correlated to where the accountholder’s primary checking is located. When a financial institution attains primary checking status for an accountholder, it’s an indicator that the accountholder is more satisfied with the overall service experience than a nonchecking accountholder (68 percent versus 59 percent). But it’s also an indicator of likely cross-sales opportunities. Data shows the accountholder is 70 percent more likely to bring the primary checking institution all their future loans, and three times more likely to bring all future deposits. The accountholder is also almost 30 percent more likely to keep accounts at that financial institution for life.

Performance Analytics data shows that 48 percent of households have a loan at the same institution where they have their checking account, compared to only 35 percent of those with no checking. Also, average products per household for a checking household is 2.57 compared with 1.29 for nonchecking households. Financial institutions can sell more key loan products, especially credit cards, another key relationship builder and source of interchange revenue, as illustrated below.

The New Value of Checking: Data

Many banks and credit unions have done a good job collecting basic data about their customers and members. They know where they live and what types of products they use at the financial institution. Most financial institutions store that data in some type of MCIF database and use that information for targeted marketing. But most don’t get beyond the basics.

For example, the institution might target accountholders with no auto loan with an auto loan offer. But what if the financial institution knew the accountholder had an auto loan elsewhere? And which competitor was receiving the monthly payment? And how much that payment was each month? Imagine how personalized that message and offer could be. All this information is in the data, which is the new value of the checking account that you probably aren’t getting any value from because you may not be doing anything with it … yet.

Get to Know Your Competition

Looking at where accountholder payments are going is a great way to compare your products head-to-head with the competition. There is a wealth of data on your direct competitors within the checking account data. We already discussed auto loans, but the data doesn’t stop there.

Other products for direct comparisons include mortgages, HELOCs, credit cards, student loans, P2P services and even investments.

Knowing who the competitor is allows you to compare your financial institution’s services to your competitors and better align your products and services to meet your accountholder’s needs.

Get to Know Your Accountholders. Like, Really Know Them

Getting to know your accountholders and understand their behavior is a key aspect of deepening the product and balance relationship. Consumers are more likely to respond when a message is personalized and meant just for them. Does this accountholder like to travel? Let’s offer them a travel rewards card. Is this accountholder a business owner? Let’s offer them our top-of-the-line business loan. Do they have children? What about the new Kid’s Checking Account?

Getting to know your accountholders is also a great strategy for product acquisition.

Know How Active Your Accountholders Are

No, not how much they exercise. Data can also be used for activation strategies. If you have accountholders who have a debit card but have zero swipes per month, they should be receiving constant messaging about activating and using that card. Are they using direct deposit? Have they attached that card to their mobile device? The goal is to get as many transactions as possible by getting that checking account attached to multiple channels.

As much as we all want to jump in and start to implement some of these practices, for most of us, we just don’t have the technology and resources to get there on our own. Don’t worry, there’s help! Solutions like Predictive Analytics empower financial institutions to easily understand and leverage data, interact with accountholders, and measure results. They take billions of checking transactions, cleanse them, and make them usable and meaningful.

While you are working to fit a data strategy into your budget, focus on increasing active checking account penetration to all your households. You might not be able to use the data right away, but it will pay off as the value of checking account data continues to increase going forward.

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