In an increasingly competitive environment, free checking accounts are ubiquitous and thus no longer a differentiator amongst financial institutions. Consumers are increasingly starting to look more holistically at a financial institution and its offerings – lower interest rates, mobile apps, digital banking, value-added services and fees – to determine which one is the right one for them. At the same time, margins are tight and financial institutions are searching for ways to generate non-interest income.
Financial institutions should think innovatively about their offerings because doing so would help differentiate themselves from their competitors. One way to do that is to move away from free checking accounts and towards fee-based offerings with added value. While seemingly counter intuitive, doing so could potentially be a mutually beneficial solution for consumers and financial institutions alike: consumers would receive services that help them manage and safeguard their financial integrity and well being, while financial institutions could increase non-interest income and derive a more profitable relationship with their account holders.
However, this strategy would only work if consumers see enough real, added value to pay a fee on an account they’ve always received for free. And this is definitely possible. Approximately 70 to 80 percent of consumers on average typically stay with their financial institution when they transition to a fee-based, value added checking account. The remaining account holders remain at the financial institution in an alternative limited value account.
4 reasons value-based checking can work for you
1. Maintain your market share and consumer retention. With the Amazons of the world potentially offering more fee-based services predicated on more value, you could stand to lose market share by having consumers leave for an account that is constructed to deliver more value. Your consumers’ perceptions of value may be changing – and if so, it’s imperative that you stay in tune with what they value.
2. Consumers will pay for benefits they value. Consumers continually demonstrate that they are willing to pay more for what they perceive brings them more value. Additional fee-based checking benefits might include perks like no ATM fees, mobile banking, free online bill pay, discounts on safe deposit boxes, free checks, as well as third party benefits, including: roadside assistance, accidental death coverage, identity theft coverage, credit monitoring, cellular phone protection, travel or leisure discounts, discounted movie tickets and more.
3. Create surprise and delight. If you provide consumers with services they did not expect from their financial institution, you now have an opportunity to surprise and delight them when they open a new account. Consumers’ expectations and experiences will improve. Educate all employees on the program – from the C-suite down to the front desk employee. Everyone should have the ability to answer basic questions and serve as brand ambassadors for this exciting new checking program to inquiring consumers. It also gives retail staff new, compelling talking points to discuss with potential account holders.
4. Provide real value in the benefits. Value-based checking provides an opportunity to your financial institution to meet the needs of your consumer base – beyond the need for a checking account – in a customized and thoughtful manner. For example, free credit monitoring alerts and roadside assistance may appeal to some consumers, while discounted movie tickets or cash back shopping rewards might appeal to others.
Thinking about checking accounts innovatively can be the key to maintaining a happy and loyal customer base, while also meeting the current and future needs of your financial institution. HUB International’s consultants can work with you to see if this is right for you, while also advising on the proper risk management solutions.