LOMBARD, Ill.—Changing consumer behaviors and new, nonbank competitors require that financial institutions rethink their checking products, Raddon Financial Group asserts.
Fabio Biasella, VP and managing director, client advisory services at Raddon, said the new competitors and consumer demands—remote deposit capture, mobile banking, social payments, prepaid debit cards—are transforming how consumers use their checking accounts.
“Checking account profitability will probably never increase again,” said Biasella in the Raddon Report. “Instead, we’re in an era where financial institutions need to manage the loss and use the behaviors inside the account to develop other parts of the banking relationship.”
Biasella noted that consumers expect anytime, anywhere access to funds and account information, which has led to an outlay of resources for the development of technology, including digital products and services.
“Nonbank competitors are using this same technology to break away customers and revenue from financial institutions. Is your checking product line profitable or is it a loss leader? The answer will inform your financial institution’s product design and cross-selling strategy,” he said.
Biasella recommended that FIs review the design of their checking product line to determine if the features align with consumers’ payment behaviors.
“Begin by making sure you’re rewarding behaviors to ensure income streams stay with your financial institution,” he said. “If a customer or member is using an alternative financial provider, for example, offer an incentive to use a debit or credit card to make those payments instead.”
Checking accounts are not an undifferentiated product; free checking for everyone should no longer be an option, added Biasella.
“Financial institutions should redesign their checking menu around how consumers live and work – and their profitable behaviors – instead of focusing on a set of features,” he said. “Deploy the technology that consumers expect, but do it in a manner that allows your financial institution to protect the relationship and provide incentives based on how people pay for things.”