While most banks in the US are eliminating free current
accounts and rewards schemes to cope with the changing regulatory
environment, several lenders are introducing or tweaking current
account products to encourage lower-cost e-banking behaviour among
customers. Charles Davis scopes out products that
lenders have launched to give remote banking a push
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As US banks scramble to make up lost income as
a result of the new regulatory landscape, a few institutions are
moving in the opposite direction, holding fast to free current
accounts, while tweaking their product sets to encourage remote
banking.
Most large US banks either added or increased
the fees on current accounts in an effort to
compensate for revenue they have lost from regulations on
overdrafts and debit card interchange fees.
But while other banks have eliminated
free current account options, imposed new fees and
cancelled debit card rewards programs on their free or
lower-cost current accounts, a subset of US banks sees
opportunity in staking out a position at the other end of the
market, but they are doing so with the proviso that consumers meet
them halfway by engaging in lower-cost banking behaviours.
Waterbury, Connecticut-based Webster Bank
launched a new product, eChecking, that the bank touts as an “easy
to be free” account designed for consumers who prefer to perform
the majority of their bill payment and other banking transactions
online.
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By GlobalData“Increasingly, our customers are becoming
strong users of online and mobile banking, online bill payment and
direct deposit,” said Michelle Crecca, executive vice president and
chief marketing officer at Webster Bank.
“Many of them seldom write paper cheques and
choose to receive their statements electronically instead of in the
mail. After examining those preferences, we realised that we had
all the right ingredients to create a new account service that does
not require a minimum monthly balance in order to be fee-free.”
eChecking is fee-free for customers who write
five or fewer paper cheques per month, select online delivery of
their bank statement and have at least one direct deposit of $500
or more per month.
A maximum $5 monthly fee will be incurred in
any given month that the direct deposit and/or paper check writing
requirement is not met, but that fee will be waived for customers
22 years of age or younger.
Separately, customers who
choose eChecking and opt to continue receiving a paper
account statement in the mail will incur a $5 per month fee.
Sun National Bank has linked free checking
with a rewards program in a product set called Boomerang Checking
that also encourage online and remote banking.
Boomerang Checking has
no minimum balance and no monthly service fee,
and offers a variety of free convenience services, upfront cash
incentives and ongoing cash rewards in the form of 10 cents cash
back on every debit card purchase.
The bank also is offering a number of
incentives to encourage consumer behaviors, including up to $100
cash for opening a new Boomerang Checking account and
activating certain e-services, $50 for activating a new Visa Check
Card and $50 for activating direct deposit of payroll, social
security or pension funds.
“While other banks want their customers to pay
them for using their products and services, Sun would rather pay
the customer,” said Thomas X. Geisel, Sun National Bank President
and CEO.
“Sun’s Boomerang checking
account can be entirely free, because customers can
eliminate minimum balance requirements and unnecessary
fees. Plus, we take free a step further with cash back and a
desirable rewards program.”
Boomerang Checking e-statements are
free, and paper statements are available for just $5 per month.
Customers who like to use paper checks receive their first order of
checks free and can write up to five free checks each month
(additional checks written are 50 cents each).
In Rhode Island, Washington Trust is bucking
the checking trend as well with a checking product that unleashes a
whole host of freebies, provided that customers set up direct
deposit of the paychecks.
Washington Trust is one of the few banks in
the US to offer a free checking account along with
free online banking and bill payment, a free debit card with
rewards, free SMS text messaging and free use of Washington Trust
ATMs.
Even banks that have introduced checking fees
are finding that consumers will change their ways if it means
lower, or no, fees. At US Bancorp, the majority of the bank’s
checking customers are avoiding monthly fees a year after the bank
introduced fees to its basic checking product.
US Bancorp replaced its basic free
current account with a product called Easy Checking, along
with a $6.95 or $8.95 monthly maintenance fee, depending on
whether a customer chooses paperless statements.
Customers can avoid the fees if
their account registers $500 or more in direct deposits each month,
or if they keep a monthly deposit balance of at least $1,500. And
thus far, most consumers are doing just that, the bank said.
Whether such changes in behavior can offset
the revenue lost from fees is a matter of scale. Banks with
customer bases as large as US Bancorp’s can recoup the fee income
on the back of the additional assets.
It is the smaller institutions that most need
to change consumer behavior through incentives, incentivising
consumers to engage in lower-cost transactions. It is a trade-off –
in exchange for more cost-effective customers, US banks are willing
to revisit maintenance fees, mindful of their unpopularity in
perilous regulatory times.
That shift is being felt across the industry.
In the second half of 2011, the number of checking
accounts without a monthly maintenance fee increased
to 39%, up from 35% earlier in the year, according to the
latest Bank Fees survey by
MoneyRates.com. Overall maintenance fees have
dropped as well.
Checking accounts that still maintained
their fees charged customers an average of $11.28 per
month, down from $11.75. Minimum balances also dropped
significantly. The average balance needed to
avoid fees is $391.41, compared to $517.41 at the end of
the year.
That is certainly not what was expected when
the regulatory reformers forced the hands of the banks last year,
but then again, if the end game is lower fees, then the market is
responding in kind.
