"Banks Re-imagine Checking Accounts" Article Should Wake Up Checking Strategy

The American Banker published an article June 12th on Key Bank’s new “Hassle Free” checking account and Bank of America’s “SafeBalance” account that are “debit only” and offer no overdraft fees.  Industry players interviewed offered a range of perspectives on the accounts, ranging from “the theory is un-proven,” in referring to the strategy to saying the accounts were for “low to moderate income households.”   The implication was that community and regional banks should stick to basic checking strategies, like free checking.

Frankly, these perspectives reflect the reason that service charge revenue in the industry is down 20% and is not growing.  Revenue is not generated by accounts today, but by payment transactions.  Checking accounts are losing revenue to other payment methods that at best settle to the checking accounts with little revenue, relationship value or payment relevance.  In reality, “accounts” with no overdraft fees ever and heavily focused solely on debit card use are growing revenues, and have been growing rapidly and used extensively for several years now.  They are called a reloadable prepaid card, and everyone from Walmart’s BlueBird card, to American Express Serve to GreenDot’s GoBank market the “no overdraft fee” position.  Prepaid debit card transactions have stolen now nearly 20% of bank debit card transactions as they have failed to respond. Research documents the growth is not driven by low-to-moderate income households or under banked users, but mainstream consumers wanting certainty with certain payments and purchases.

Most importantly, the profitability of these strategies need to recognize that consumers do not use a single account for payment any more.  Instead many have many payment methods, from PayPal, a Starbucks card, a Target Red Card, and, oh yes, a bank debit card.  As a result multiple payment methods are a part of a profitable relationship not just a single account. Key Bank executive Dennis Devine showed the clearest understanding of this new multi-account payments marketplace when he stated that consumers want an account in their payment portfolio that offers “clear and simple banking with no surprises.”

As proof, talk with our clients that offer PaySound^® No Overdraft Fee Ever Checking Plan and the PaySound^® Companion debit card only account to see how “clear and simple banking with no surprises” drives 30% growth in service charge revenue.