Comments on: Keep On Banking In The Free (Checking) World

By: Jeffry Pilcher

Jeffry Pilcher — Sun, 07 Feb 2010 16:20:22 +0000

They get a disproportionate amount of press because no one wants (nor needs) to read articles about “yet another branch that looks just like the other ten of thousands that are already out there.” People want to read about what is new, different, innovative and unusual in their industries, regardless of whether people like you and me think the ideas are silly or awesome. These types of branches may not be practical or successful, but they are newsworthy.

By: Ron Shevlin

Ron Shevlin — Fri, 05 Feb 2010 15:00:45 +0000

Thanks, DMac. No worries on typos. It’s been my impression for a number of years that banks in both New Zealand and Australia have been ahead of US banks in terms of new product development from a retail perspective.

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Fri, 05 Feb 2010 04:52:31 +0000

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By: Ron Shevlin

Ron Shevlin — Thu, 04 Feb 2010 18:23:27 +0000

Yeah, you have a point there. My perception is influenced by the disproportionate amount of press those efforts get in the trade publications.

By: Jeffry Pilcher

Jeffry Pilcher — Thu, 04 Feb 2010 15:52:19 +0000

Ron, you frequently imply that banks and credit unions have widely deployed branches where people can hang out like they would at a Starbucks or an internet cafe. These kind of branches aren’t as common as you suggest.

I’ve worked with over 200 financial institutions on their branch models. Very, very few have even considered the cafe idea, and even fewer have tried it.

Yes, there is Umpqua, Gold Coast Cafes and ING Cafes. But it seems unfair to characterize the entire industry as crazy and unpredictable over the branching choices of a few.

By: digitalmacdonald

digitalmacdonald — Thu, 04 Feb 2010 09:22:36 +0000

You might get some inspiration from looking at how some retail banks overseas have evolved. In New Zealand for example, checking accounts are rare now.

Fees are just fees and generally use a fairly simple model where the more value you provide to the bank (eg mortgage, insurance, term dept), the less fees you pay. There are some loss leaders for some things like student accounts but that is pretty much standard retail thinking.

The really interesting bit is the range of advanced products that the banks are using for differenciation. Things like account groups where you have 10 different accounts set up for different expence types. Your pay is automatically distributed across these using your settings.

Have been out of the states for a while so don’t know if this is common back there.

Take home message: future of banking should be product innovation lead by knowing what your customer is willing to pay for.

Sorry for any typos. Using iPhone tonight.

By: Ron Shevlin

Ron Shevlin — Wed, 03 Feb 2010 21:32:59 +0000

Thanks for commenting, Chris. You’re probably right about the likelihood of this happening. But many banks have acquired the idea over the past few years that their branches should be places like Starbucks where people would hang out, drink coffee, access wifi, and — presumably — open new accounts. If they believe that’s a good model, who know what they’ll think of the telco model.

By: tontine

tontine — Wed, 03 Feb 2010 15:29:27 +0000

Intriguing nightmare, but I would give it low chances of actually happening due to:
- There is currently no regulatory requirement that would prevent you from doing so, but it could be quickly created (see what happened to conversion plan of Citi free checking accounts this past Monday. Reg DD is clear in stating that product changes require a minimum of 30-day notice: Andrew Cuomo arbitrarily changed that to 1-year in NY)
- Not sure about the profitability of that business model. Unlike telco you can open as many checking relationships as you want (40% of U.S. households have multiple checking accts): to have an account with low customer engagement after 6 months is expensive to banks.
- Free Checking will continue to exist: banks with high branch costs will likely eliminate the product; banks with a different business model will keep it and enjoy organic deposit growth that in the past was achievable only through pricing efforts. This particular model will likely push more customer towards online-only banks

Banks already have closure fees in their checking models (i.e. if you close the account during the first 6 months you are charged a fee of $15.00 for example), but, unlike utilities or telcos, this fee is seldomly collected: it is not worth the cost to pass an account in negative balance by a small amount to a collection agency or to try to recoup it internally

Chris del Balzo

By: Colin Henderson

Colin Henderson — Tue, 02 Feb 2010 04:56:40 +0000

hahaha …. there is no free bank account as you noted. It never existed and never will. If a bank account was ruled by the investment side of the regulatory police, the word free would not be permitted because money sitting with no return is not free.

The answer to your post apocalyptic bank account world is simple. Lots of fees charged by banks.

The interesting thing might lie in the alternatives that are not bank accounts per se, but payment methods that don’t exist today. But the checking account will be defunct.

By: George Pasley

George Pasley — Tue, 02 Feb 2010 01:45:23 +0000

Oh Walmart still wants to open a bank in the US. The problem is they are continually being blocked by lobbyists. I have no doubt that they allow banks into their stores so they can figure out what not to do.