As bank after bank in
the US announces the end of free current accounts, Huntington
Bancshares is moving aggressively in the opposite direction. It is
a contrarian play by an ambitious lender, surrounded by retail
banking rivals intent on wringing every last cent from current
account customers. Charles Davis reports.
Go deeper with GlobalData
Free banking is
alive and kicking in the US, at least in the markets served by
Huntington Bancshares.
And the lender’s CEO Stephen
Steinour is not averse to crowing about the bank swimming against
the tide of its bigger rivals pricing strategy. He has challenged
the competition either to embrace free current accounts or come
clean about their plans to abandon it.
It is all part of what
Huntington is touting as Asterisk-Free – a package of services most
of the bank’s rivals are now levying charges.
Huntington’s product is free
to open and has no monthly maintenance fee, minimum balance or
rules governing check or debit card use.
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By GlobalDataHuntington is one of a
handful of top 20 US retail banks to embrace free current accounts
– the country’s larger banks began reacting to regulatory changes
by introducing new fees.
The Dodd-Frank Wall Street
Reform and Consumer Protection Act passed last year lowers banks’
debit fee levied on merchants to 12 cents per transaction from an
average 44 cents. Other reforms effective last year cut into banks’
fee income from overdrafts on debit cards
Huntington cites a recent
American Bankers Association survey that shows 81% of banks plan to
increase current account maintenance fees, 77% will impose or
increase fees on other programmes, and 66% will get rid of free
current accounts.
According to research from US
consultancy Raddon, 87% of US adults currently enjoy free current
accounts (see pie chart).
The free current account is
part of a streamlining of Huntington’s deposit offerings, says Mary
Navarro, director of retail and business banking: Huntington once
had six different current account products, today it has
two.
“We started in 2009 with a
strategic planning exercise to look at how we could differentiate a
checking product,” Navarro says.
“And along came the Reg E
changes and people adding all kinds of fees and stipulations – and
we just saw this great opportunity to create a different stance for
our bank.” Huntington tested 38 combinations of features, and
24-hour grace – a service that lets customers make a deposit a day
late to avoid overdraft charges – rose to the top.
That feature – unveiled last
year – quickly led to bank executives focusing on other ways to
make the bank stand out.
That discussion led to a
broader ‘fair play’ marketing and business plan. Huntington seeks
to attract new customers by not raising fees and prices on basic
banking services across the entire institution, and is looking for
other ways to embody fair play.
Huntington’s strategy is
remarkably straightforward: lose revenue now by not raising fees,
to grow the bank by attracting more customers who are likely to buy
multiple products.
The 24-hour grace programme
alone will result in $30m of lost revenue a year.
It is a bit of risk, as
Huntington’s expenses trend higher than aggressive in-market rivals
like US Bancorp, which is betting it can take share by offering
cheaper loans or services even as it eliminates beloved customer
giveaways like free current accounts.
Huntington’s net income rose
3% from the second to the third quarter, to $126m. Revenue fell
about 6% to $645m.
Navarro believes that free
current accounts will pay off over time. Huntington grew its number
of banking relationships per household at a rate of 9% annually in
the first quarter, she says.
“We see even greater growth
in new accounts moving forward,” she says.
So many account holders moved
into free current account products years ago and have never been
charged a fee.
“It is famously difficult to
get people to move their checking business to another bank, but
fees will do the job,” Navarro says. “Having two accounts makes it
much easier for the consumer to understand, and much easier to
sell.”
Once in the bank, Huntington
knows that current account holders are more likely than
non-customers to take out a loan or seek investment advice from
Huntington.
The more non-interest bearing
funds that the bank originates, the less it has to rely on costlier
wholesale borrowings or deposits that accrue interest, like money
market accounts and certificates of deposits. That, in turn,
improves the net interest margin – just like fees, but more stable
and longer lasting.
A free current account is not
the bank’s last customer-friendly rollout.
It is testing 32 other
products that may or may not come to market – anything from
“consumer products and services to business banking and commercial
banking, all with an eye toward making the bank easier for our
customers and what can differentiate yourself in the marketplace”,
Navarro says.
“We can pay for this through
better account acquisition, retention and cross-sell. We see
improved deposit margins as well.”
Huntington also will be
moving customers into the new account or Huntington Plus Checking,
which provides additional perks for those who maintain $15,000 in
deposits.
Huntington is not completely alone, however, in offering
free current accounts. One of its major competitors,
Pittsburgh-based PNC, rolled out new current accounts and credit
cards in March, keeping a free basic current account and introduced
new current accounts that offer more rewards and perks for
customers while offering multiple ways to avoid monthly
charges.
