By Ray Birch
LAKE FOREST, Ill.—What is driving checking growth at some of the biggest banks and credit unions in the country? Once again new data show it’s the lowering of overdraft charges.
A new study from Moebs $ervices reveals many of the major players in offering checking made product and strategy changes at the end of 2022, and the biggest is they now have a median overdraft charge of $20.
“There are common elements of transaction accounts for the big providers which set them apart from the other 8,400 FIs offering checking,” explained Michael Moebs, economist and CEO at Moebs $ervices (see chart). “The most significant development in Big Checking at year-end was the substantial reduction of the median overdraft price from $35 to $20, or 43%, and it showed in their account growth.”
As CUToday.info has reported, Big Checking—defined by Moebs $ervices as organizations with more than one-million checking accounts—keeps getting bigger, at the expense of smaller institutions, like credit unions. There are 29 institutions that have more than one-million checking accounts.
Members of the Big Checking fraternity range from Walmart at no. 1 in transaction accounts (108.3 million accounts, for 18.9% of the national market) and Bank of America at no. 2 (68.3 million) with 11.9% market to Chime and USAA. Credit unions in this category are Virginia’s Navy FCU (9.0 million), North Carolina’s State Employees CU (1.6 million), and Washington’s BECU (1.1 million).
‘Fear of Unsecured Credit’
Moebs pointed out, however, the median OD limit at these large institutions is $500, still below what many others provide.
“There remains a fear of unsecured credit with the large providers of transaction accounts,” stated Moebs, who also uses the term “T-accounts.”
Another move by members of Big Checking is offering more free checking products, with Moebs saying these institutions offer free checking twice as much as all other T-account providers.
“And half of the big checkers use an early payday grace period, which arose with COVID,” he said.
“Most important is five out of 29, or 17%, have profitable checking portfolios. While the other 24 providers are running at a loss with their checking portfolios,” Moebs continued. “Also, there are three Big Checking providers with checking losses five times higher than the norm.”
Growth Within the Club
As CUToday.info has reported, since the Moebs $ervices Big Checking Survey & Report started in 2019, membership in the club has markedly grown.
“In the past year, 34.4 million consumer transaction accounts are new within this group, with a yearly increase of 1.5%,” Moebs explained.
The major reason for the “astonishing” checking growth among those who claim the lion’s share of checking, is the Federal Reserve eliminating reserves and deposit withdrawal limitations in March 2020, Moebs said.
Michael Moebs
“There has been an increase since 2019—he COVID era—in consumer transaction accounts of 207.6 million. This is primarily because the Federal Reserve has changed the parameters of what constitutes a transaction account,” explained Moebs. “Big Checking FIs have taken 195.9 million of these new accounts, or 94.4%. Are the other 8,400 financial institutions providing 141.6 million T-accounts, or 24.6% of all checking, being left in the desert to wither away? Absolutely not.”
3 Fundamental Steps
Moebs said there are three “fundamental steps” the 8,400 FIs in the U.S. can take to maintain what they have and even grow their checking account bases:
- Make the checking account portfolio profitable
- Increase overdraft limits or make unsecured credit a viable lending function
- Reduce the overdraft price to less than $20 a transaction or shift the pricing to end of day balance
“All three of these actions have been tested and proven viable in all U.S. markets,” noted Moebs. “And it is now time to implement them.”