The topic of Business Strategy and implications to Member Loyalty, Revenue Growth and Profitability are rather timely as Credit Unions prepare for the Annual Strategic sessions.   Specifically related to checking accounts, every Credit Union ought to be asking questions including:

  • How effective and efficient has the member acquisition program led by checking account product sales been?
  • How effective is the cross-sale plan that is based on WOWing the checking account customer into additional product sales?  How much products have been upsold, on average, to a checking account led acquisition?  How much revenue and profit have the checking account led acquisition members generated for the Credit Union?

Perhaps the experience of your Credit Union is an outlier, but the data is overwhelmingly and unequivocally negative.  That is, checking accounts are effective only at increasing the count of checking accounts (and perhaps the wallets of certain vendors who continue to sell the value of the checking account).   10 years ago, the checking account may have been the gateway to a broader wallet-share, revenue and profit growth, but circumstances have changed and the checking account is a liability – in all senses of the word – for the vast majority of Credit Unions.

The checking account holy grail myth seems to be inexhaustible.   Bankers have been armed with the perceptions of the future based on yesterday’s experience, and buttressed by some self-interested vendors, advisors, and associations who are, frankly, afraid, to ‘tell it like it is’ or worse, who don’t know any better.

Most checking accounts generate little or no revenue and the vast majority generate non-recoverable operating losses, with little or no opportunity for cross-sell into revenue-generating products. Our own prolific writing on the topic includes the following articles that illustrate the dearth of value of the checking account to the member and to the Credit Union:

The ineffectiveness of the checking account is validated yet again by a recent TD Bank / Angus Reid Public Opinion survey that polled more than 3,000 checking account consumers.

Product Ownership

TD Bank’s survey indicates that although a healthy 83% have a savings account in addition to their checking account, less than 50% have a credit card, and less than 20% have a mortgage, loan, LOC or Investments.

Consumers' Product Ownership with Primary Bank

A Small Minority of Consumers Own Products that Generate Revenues for Credit Unions’ Product Ownership with Primary Bank, TD Bank Checking Experience Index

In other words, a very small minority of members own revenue-generating products from their Primary Credit Union.  These findings are consistent with the findings of a recent Deloitte survey.

Checking Account Fees

More than 40% of consumers have checking accounts without a fee, and a third of consumers having paid fees for Overdrafts and Foreign ATM charges.  Less than 15% of consumers indicated that they had a monthly service fee or minimum balance fee.

Interestingly, the frustration level is about 50% higher for fees associated with Foreign ATM fees than Overdrafts.  Further, consumers reported that a minimum balance of just under $1,000 was required to waive monthly service charge fees for their checking account.

Many Consumers Pay No Checking Account Fees; ATM Fees much more frustrating that Overdraft fees

Many Consumers Pay No Checking Account Fees, TD Bank Checking Experience Index

Let’s summarize, most consumers are much more upset about Foreign ATM fees than about any other fee including the nefarious O/D fee.  And, in most cases, a balance of just $1,000 is required to waive the monthly service charge fee.

Checking Account Fee Experience and Likelihood to Switch

Nearly 80% of consumers report that their checking account fee remained the same or decreased in the past year.  Just 8% of consumers (or a third of the 22% who indicated an increase in the checking account fee) said that they are extremely or very likely to switch their Credit Union to avoid the fee increase.

Just 8% of Consumers Indicate an Inclination to Change Their Bank or Credit Union

Just 8% of Consumers Indicate an Inclination to Change Their Bank or Credit Union, TD Bank Checking Experience Index

Interestingly, just 12% of consumers reported switching their Bank or Credit Union in the past 2 years.  The 6% annual switch rate is well below the historical levels of 8% – 10% switch rates.

Of the switchers (the historically low 6% of the population), 40% switched because of the pricing / fees. 16% (of the 6% who switched banks) switched because of convenience, most likely indicating that they moved and therefore changed their Banks.  Just 7% (of the 6% who switched Banks) of consumers reported switching for reasons related to Brand.

Just 6% of Consumers Actually Switched Banks in the last year, but only a small minority did so for Brand reasons

Just 6% of Consumers Actually Switched Banks in the last year, but only a small minority did so for Brand reasons, TD Bank Checking Experience Index

Price is and will always be the primary factor in highly commoditized industries where products and services are non-differentiating.  Nearly half of all switchers recognized the availability of many alternatives.

Just 7% consumers who switched their account did so for Brand issues.  So, most switchers – 93% – are shoppers and see little or no Brand value in their Credit Union providers.

The Credit Unions experiencing the loss of these customers may not be so sad because they may justify these defections as customers who did not appreciate / value their Brand.  Yet, it is these same Credit Unions that are aggressively courting the Brand-agnostic, price shoppers running from other Credit Unions.

Member Satisfaction

More than 80% of customers are very or extremely satisfied with their overall checking account and their day-to-day experience in using the checking account.  A very slim minority – less than 2% of customers – indicated dissatisfaction.

Fewer than 2% of Consumers are Dissatisfied with their Checking Accounts

Fewer than 2% of Consumers are Dissatisfied with their Checking Accounts,TD Bank Checking Experience Index

In fact, 31% of consumers report that Rates / Fees are the most attractive feature of their checking account.  But Just 10% note superior Customer Service, and just 5% mention Brand or Reputation as the most attractive feature of their checking account.

Fees and Convenience were rated at the Most Attractive Features for a Checking Account; Customer Service and Brand / Reputation were cited by fewer than 10% of Consumers

Fees and Convenience were rated at the Most Attractive Features for a Checking Account; Customer Service and Brand / Reputation were cited by fewer than 10% of Consumers, TD Bank Checking Experience Index

Clearly, consumers are very happy to have a free product from their Credit Union, and they know the power of arbitrage… it isn’t hard for most to switch their bank to achieve no or very low fees.  It appears that most consumers have accepted ‘so-so’ service in the great bargain.  This may work for consumers but it is Credit Unions who are left holding the proverbial bag … that is, suffering operating non-recoverable operating losses (plus customer acquisition costs).

Channel Acceptance

Let’s all say this out loud: ‘Branches are not dead but they are ghost towns’.  Virtual channels are preferred by a factor of 4x to the Branch.  Virtual channels average 6x more activity than does the Branch, though most consumers report using the Branch on a monthly basis.

Virtual Channels dominate Consumers' Preference and Frequency of Use

Virtual Channels dominate Consumers’ Preference and Frequency of Use,TD Bank Checking Experience Index

The fact that few transaction activities occur at the Branch should be welcomed by bankers.  After all, each and every transactional activity results in operating costs, which we know is unlikely to be recovered.  In fact, bankers should encourage members to transition 100% of all activities into the virtual channel as this should generate operating savings (that is, if Bankers are capable of cutting redundant costs).

Channel Selection by Transaction Type

ATMs are predominantly used for cash withdrawals, and to a lesser degree deposits.  Online Banking is heavily utilized for transfers and bill payments.  Branches are the primary source for deposits and nearly 55% of consumers use them for withdrawals.

Bank Branch Use Dominated by No-Revenue Transaction Activities

Bank Branch Use Dominated by No-Revenue Transaction Activities, TD Bank Checking Experience Index

Based on usage trends identified above, it isn’t very difficult to establish that the 2.3 monthly visits to the branch are dominated by deposit and withdrawal activity … which reinforces previous studies that the vast majority of bank branches are unable to cover their own operating costs, and that most checking accounts generate deep operating losses.

Customer Service Channel Preference

We have all heard numerous times that branch is the primary source of service for consumers.  The TD survey disputes this notion by showing that the majority – or 60% – of all members service issues are handled utilizing virtual channels, with the branch carrying just 40% of the load.

Customer Service is Predominantly Conducted Using Virtual Channels

Customer Service is Predominantly Conducted Using Virtual Channels, TD Bank Checking Experience Index

Increasingly, Credit Union members are turning to online and other virtual channels to resolve service issues.  The branch continues to morph into a zombie despite ceaseless attempts to dress it up as a “prince”.

Security Concerns

The issue of security concerns has been an overhang for online and mobile banking for years.  Yet, interestingly, the TD Bank survey shows that consumers have much greater security concerns about Foreign ATMs and Telephone Banking (40% are concerned) compared to just 34% being concerned about Mobile Banking security and 30% concerned about Online Banking security.  The concerns for online and mobile banking do not seem so great especially given that 26% are concerned about security of ATMs and nearly 20% are concerned about security of in-Branch transactions.

More Consumers Concerned About Security of Telephone Banking than Online or Mobile Banking

More Consumers Concerned About Security of Telephone Banking than Online or Mobile Banking, TD Bank Checking Experience Index

The data indicates that the incremental security concern of online and mobile is not significant, suggesting that Credit Unions ought to invest in additional education to allay consumers’ fears.

Key Takeaways

Delivering meaningful value to members requires that Credit Unions create products and solutions that are differentiating than what is currently available in the market place.  These products must be tailored to customers’ needs in terms of functionality, access, ease of use, pricing and branding.

This is perhaps the only way Credit Unions can earn members’ loyalty, grow revenues and enjoy profitability (I assume that Credit Unions realize that they don’t have the necessary scale to attempt the high volume / low price strategy).

As a result, any Credit Union that is still peddling checking accounts with the objective of earning member loyalty, increasing its brand and revenue is only fooling itself.

We will stipulate that developing a cohesive Strategy and implementing a Tactical Execution plan that delivers quantifiable benefits is not easy.  However, the alternative to generate positive results escapes us.  We are however, always eager to learn from you.

Serge Milman is the Principal Partner of San Francisco, CA based SFO Consultants which provides Strategy, Finance and Operations Advisory services. He also the Principal of Optirate – a blog dedicated to growth and profitability strategies for Banks and Credit Unions. Serge can be reached atinfo@SFOconsultants.com.

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