By Ray Birch
LAKE FOREST, Ill.—The “1 Million+ Checking Account Club” may be one many credit unions will never belong to, but that doesn’t mean it doesn’t offer some lessons every credit union can learn from, according to one economist.
The “Club” has now grown to 31 members, up from 30 when Moebs $ervices conducted its last 1 Million+ study six months ago—and it’s a trend credit unions need to be watching for good reasons, according to the author of the report.
Membership in the 1 Million+ Checking Account Club is only expected to grow will only continue, said Michael Moebs, largely because the big are just getting bigger—and yet there is some good news, as even smaller CUs can stake out a solid foothold in the checking market, according to Moebs, who is economist and CEO of Moebs $ervices.
Moebs said that watching what the 1 Million+ Checking Account Club members are doing and adopting some of their strategies will improve the position and profitability of many credit unions’ checking account programs, even as consistent repricing among the big players is lowering fees while simultaneously increasing revenue due to greater volume, he added.
“With fintechs, Walmart and Chime leading the way since our last report early this year, the membership in the 1 Million+ Club has grown,” said Moebs. “With only 8,736 depositories offering checking services, down from over 48,000 in 1969, those with one million or more transaction accounts (T-accounts) will dominate this business.”
Walmart Remains the Leader
Walmart leads all Club members at 100.5 million transaction accounts. BofA is second at 69.1 million, and Chase is third at 39 million (see chart). Navy FCU leads all credit unions at 8.2 million, while North Carolina-based State Employees CU and BECU round out the remaining credit unions in this list.
“The 31 financial institutions in the 1 Million+ Checking Account Club are headquartered across 16 states with Chicago, Boston, New York, and San Francisco the locations of eight of the Club members,” said Moebs.
As he has noted in previous CUToday.info reports, Moebs pointed out consumers are sitting on deposits that are largely in transaction accounts.
“Which makes T-accounts more valuable than loans,” said Moebs. “This has resulted from stockpiling stimulus funds.”
The latest Moebs $ervices report on this Club reveals four FIs have 45.2% of all consumer transaction accounts nationwide. Walmart and Bank of America have 31% market share, with Chase and Wells Fargo tied for third with a combined 14.2%.
The Key Features
What are the key checking features of 1 Million+ Checking Account Club member offerings? According to Moebs:
- Most offer only one consumer checking account type—down sharply in the average of three accounts in recent years
- Few offer free checking, yet “no charge” T-accounts rule if the consumer has a car loan, mortgage, or large deposit with the institution
- The 31 members have 74.3% of the entire 547.5 million consumer T-accounts in the market
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Three have profitable consumer T-account portfolios: Walmart, Chime and BMO Harris Bank
- Over 80% changed their fee prices in 2022—the norm was to change every 18 to 24 months
- Nine do not charge for overdrafts: six banks and Chime, USAA FSB and State Employees CU in North Carolina
- Median OD fee of the 22 charging overdrafts is $35. M&T Bank in Buffalo, NY charges $15 and Bank of America charges $10
- 12 banks and both fintechs have no NSF fee. Those charging an NSF fee, including all three CUs, have a median fee of $35
- $500 is the median OD limit, yet State ECU plus Citibank, Ally, and Varo are ≤$100 (not wanting ODs)
- 87% charge for stop payments and return of deposited items but neither fintech charges for these services
- Only nine FIs charge for automatic transfers from lines of credit or deposit accounts with median fee of $10
- Huntington Bank does not charge an OD fee for transactions ≤$50, and 45% of this Club have similar de minimis transaction limits
- 20% don’t charge an OD fee if overdrawn by $50 or less (de minimis balance) with Santander bank at $100 or less
- 13 FIs have grace days before charging for overdraft, or 42%--making overdrafts an error not a penalty
- 77% will put caps of three to six OD charges per day—again errors not penalties
The Key Lessons
Michael Moebs
Moebs said the 8,705 financial institutions with fewer than one million T-accounts can learn several key lessons from the “blueprint” of the big competitors in checking:
- T-Acct marketing creativity is more open than ever before. T-Accts are digital with consumers using debit cards and mobile wallets for daily purchases of groceries, fuel, clothes, lunch, etc.
- Fee transparency is critical with almost all 1 Million+ Club FIs disclosing OD pricing and payment processing on the website. Web transparency is sharply up in the past year
- The Too Big To Fail Club (TBTF) now has an additional condition for membership. FIs with eight million or more in consumer T-accounts cannot fail without careful merger, purchase, or liquidation by the regulators. Failure of one TBTF FI could cause a systemic upheaval, putting from one in four, or one in 25 workers in financial distress spreading from one market to nationwide quickly
- Some of the 31 FIs have learned lowering overdraft prices and installing fee-friendly price features earns more revenue. T-account prices have risen sharply in recent decades curtailing volume, thus revenue too. Lower prices mean more net revenue, while the consumer benefits, too
- Fee-Friendly means a combination of no fee for stop payments, return of deposited items, transfers from deposit and/or line of credit, de minimis balance/transaction limits, grace day(s), and daily caps on checking transactions
- Zero fees for overdrafts and NSFs is a mistake. “Did your mother give you dessert for breaking a window?” asked Moebs
Saving the Day
“Finally, overdraft limits will save the day. The largest OD limit in the nation is $10,000 from a credit union that is not in the 1 Million+ Checking Account Club,” said Moebs. “Credit unions are leading the way in assigning analytical risk for transactions to T-accounts.”