A recent study looked at the breakdown of all checking accounts opened in 2020. The research found that: 49% of accounts were opened with megabanks, 19% with regional banks, 18.5% with digital-only banks, 7% at credit unions, and 2.5% at community banks. With community institutions capturing such a dismal portion of new accounts, they must take a closer look at their offerings.
It’s becoming increasingly difficult for banks and credit unions to differentiate themselves with their checking lineup. Designing a checking account lineup that appeals to the financial needs of your customer base is critical but there are many challenges:
Understanding your customers’ needs
Consider the needs of your customers and incorporate features that address those needs to make your offering more attractive:
KEEP THE CHANGE – This savings feature allows account holders to round their purchases to the nearest dollar and setting that change aside for savings. Introduced in 2005 by Bank of America, two million consumers signed up for the program in its first year. Currently, 12 million Bank of America customers have signed up and have saved a collective $2 billion. Many other institutions have since adopted the program.
SAVINGS APPS – Automating savings is an attractive feature to younger customers. Easy savings tools coupled with higher savings rates are the primary attraction, but an exceptional mobile user experience is essential. Ideally, there would be various avenues for saving, including round up, sweep, spending analysis, and savings goals. Acorns is leading in this increasingly competitive space.
REWARDS – Rewards programs remain an appealing feature for customers. 26% of national bank customers and 16% of community bank customers are enrolled and active in a rewards program.
Not all accounts are profitable
Current estimates suggest that only 65% of checking accounts are profitable. The average checking account generates $268 in annual revenue and the average servicing cost is $349 (Cornerstone Advisors, FRB, 2020). This is a perennial issue for financial institutions. If repricing strategies are not favored, then a targeted cross-sell effort should be implemented to expand the adoption of cost-saving services, such as eStatements, or to increase balances to improve profitability.
Fewer consumers are switching accounts
Fewer consumers than ever are switching accounts (4% in 2020, J.D. Power). And who can blame them? Changing accounts is a pain, and accounts just seem too similar.
While consumers aren’t likely to make the switch for their primary checking account, they are more likely to open second accounts. In fact, 35% of households have a second checking account at another FI (Cornerstone, 2021). If consumers are unlikely to switch their primary account, what is leading them to open a second? Many people are motivated by better offers or specific needs. Meanwhile, that primary account has become a place to “park” funds and move them when they’re needed.
As people look for and open second accounts, the features that are driving their decisions are:
Higher savings rates
Help with savings, budgeting, and goals
Cash back
Tools to better manage finances
It’s difficult to stand out
It’s difficult to stand out with a typical account lineup. As you look at your checking strategy, it’s important to understand why consumers open accounts and what they are looking for. What makes a person open a checking account at all? The primary reasons are:
It’s a first account
A significant life event such as moving or a new job
Dissatisfaction with service or fees
Attraction to a specific feature a competitor offers
Better rate
And, of course, convenient branches, robust online/mobile access and functionality, an ATM network, and low or no fees are table stakes.
COVID has affected account openings
The COVID-19 pandemic has affected so much over the last twelve months, especially our purchasing habits. It’s vital that your online account opening experience is simple and that the design features of your accounts are easily defined and understood.
To grab a greater percentage of new accounts, it’s important to analyze both your customers’ needs and your existing lineup to fully understand how your current accounts are performing to identify your FI’s challenges and tailor your own checking growth strategy accordingly. Evaluation of your deposit accounts and development of a new lineup isn’t a one-size-fits-all solution, but it’s essential as you seek to drive growth.
Galapagos can help. For a robust analysis of your current lineup or to discuss a complete product redesign, give us a call today.