Big Banks Kicking Up Smoke on Free Checking and Free Bill Pay

The Game Changers
In 2002 the proverbial shot that was heard around the world of online banking was...free bill pay. The culprit credited as being behind the shot was the Big Bank that calls Charlotte, North Carolina home. Actually the first “free bill pay shot”  was fired by the “Big Bank That Never Sleeps” five years earlier when it did a major marketing campaign on the streets of Manhattan touting its no-fee electronic banking message but it was largely ignored by the financial services industry. Yet, in 2002 when the world took notice of this "game changer". Big Banks were no longer charging five dollars a month for online banking and soon the rest of the industry was forced to follow its lead. Since then every new service or feature associated with the online channel has been basically “free”.

So now it is interesting to watch the rest of the industry as the same Big Banks attempt another game changer by change the rules once again. In the "The Billy the Kid Checking Account” post I highlighted the new pilot testing that is happening in test markets in Arizona. Most of the article focused on the cost of having a checking account. This is because I looked exactly where the Big Bank marketing department wanted me to look. I was supposed to look at the checking account fee structure as it was the smoke that obscured what was really going on.

I Didn't Like the Song till I Saw the Video
This morning I saw another example of shifting peoples attention as I was watching a music video that came on TV. The video looked rather boring and I was about to change the channel until it cut to a scene with a dancer in a pirate or historical costume dancing and kicking up smoke. Suddenly I was no longer noticing that the singer in the video never moved or that I never saw the band. Instead my mind was focused on the "Cool Ninja Pirate Dancer" who was kicking up all the smoke. The same thing is happening as people are watching the changing trends in consumer fees and are focused on watching what the marketing department wants them to.

It is easy to miss with all the smoke being kicked up over checking accounts that the "silent shot in the dark" is actually on free online bill pay. Only this time around the Big Banks are not doing a major advertising campaign on the new fee structure like they did back in the day.


The Products Behind The Smoke
Below I have listed the two lowest cost accounts being offered in the test markets in Arizona:

·                     An “Essentials" checking account is a basic account with a monthly fee (six dollars) and a debit card. Sadly you do get online banking but you do not get bill pay with it. Bill pay, well that is 4 dollars more per month.

·                      An "eBanking" account has no fees if the customer opts for e-statements and makes deposits and withdrawals online or by ATM. Also includes mobile and bill pay for only nine dollars a month.  

Notice that online banking is free but the cost of actually having bill pay adds to the monthly charge. To pay bills online you have two options with the accounts listed above. Those options are listed below.

·                     Option #1: You can have the entry level “essentials account” and add bill pay as an ala carte item for 4 dollars a month. This brings the total expense for checking and online banking with bill pay to 10 dollars a month

·                     Option #2 is to upgrade to the “ebanking” account which has no monthly fee when you make all deposits and withdrawals online or at an ATM (not at a teller) and sign up for paperless statements. However if you walk into a branch or call someone that visit will cost you as you then get hit with a monthly service fee of 9 dollars.

The pricing on this is shady. They have positioned the lowest cost option first and then added an ala carte bill pay feature that is more expensive than the next product up the product line.

The sad fact is that the people who are in the most need of watching their balances, paying their bills on time, and having access to someone to talk to them about improving their financial lives are being discouraged by add on fees from ever talking to the very people who could help them.

There are around 130,000,000 consumer checking accounts in the United States and most of them belong to people who most of us would consider residents of Main Street society. Given this fact it is not hard to see that the smoke being kicked up is directed onto the lower and middle class households on Main Street that are in need. 

Migration of Checking Accounts 

If you were to look back to 2009 you would find that Big Banks and Regional Banks with deposits over $50 billion enjoyed about 45 percent of this market. Today you would find that about five million accounts in 2010 shifted from Big Banks to community banks and credit unions. This shift is expected to continue throughout this upcoming year as community banks and credit unions grab up to 65 percent of the checking account market. Looking back over the last several months, from July 2010 to February 2011, community banks offering free checking increased by one percent and credit unions by nine percent! 

This is great news for credit unions and small banks. When you stop and consider how hard it is to get someone to change their financial institution you really appreciate just how much resentment is out there on this topic. This migration tells us that this is an issue worth talking to your product managers and marketing experts about. Five million people saw past the smoke and went home to fill out a switch kit. They went through the trouble of changing their online banking bill pay recipients and their direct deposits. Bottom line they were aggravated enough to take action.  

The silent message being sent by the Big Banks is that free checking and free online bill payment are things of the past. In their drive to maintain fat margins they have kicked up smoke and fired a shot at every person who lives or works on Main Street. Big Banks taking aim at the consumer is nothing new. No, what is really interesting is that five million people saw through the smoke and shot back firing their Big Banks. 

Practical Application:

Now is the perfect time to tout your free services. Don't let Big Banks define the trend you follow or set for your membership. 

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