Check Offerings More Focused Per Moebs Study

Return to Basics Cuts Costs and Helps Sales

PALM SPRINGS, Calif.--()--(Special from Moebs Pricing Institute) Financial Institutions (FIs) are getting back to basics – reducing the number and types of checking offers in order to cut costs and improve their staffs’ ability to sell, according to Economist Michael Moebs, CEO of Moebs Services (www.moebs.com). The economic research firm located in Lake Bluff, IL, surveyed 2,890 Financial Institutions January 2-10, 2014 for their study of checking offerings. “We found a significant reduction in the number of offerings – a maximum of 8 today with a median of 3 compared to 10 to 20 prior to the fall of 2008. The Dodd-Frank Banking Act is forcing depositories to address the increased costs from government regulation and one of the FIs responses is to reduce the number of check offerings,” continues Moebs.

What to Keep and What to Shed

With the reduction in the number of checking accounts, the focus is moving to the types of accounts. What do you keep and what do you shed? The business of checking is getting back to basics and shedding the multiple types of checking accounts. The Moebs study identified four primary types of checking accounts in use: 1) Interest Checking, 2) Free Checking, 3) Senior Checking and 4) Basic Checking with a minimum balance and fee for not meeting the minimum. “The other types of checking,” suggests Moebs, “are being phased out with the exception of electronic checking and relationship checking. The former is very cost effective and the latter can support a profitable relationship.”

 
Checking Accounts Types
Type National Usage
Interest 77.4%
Free 59.2%
Senior 42.3%
Basic 39.8%
E Checking 25.8%
Youth 22.0%
Relationship 12.5%
Rewards 12.2%
Fee 11.2%
2nd Chance 11.9%
Other 1.1%

Source: Moebs Survey, January 2-10, 2014 of 2,890

Banks, Thrifts & Credit Unions

The “Loss Leader” Still Needs to Break Even

Checking, with its cost of approximately $175 to over $400 a year, is the loss leader offered to generate deposits, fee income and other relationships. The goal is to have the account break even at a minimum. “FIs need to make sure that their ‘loss leader’ accounts generate revenue in some other way and don’t become ‘lost leaders’ with no one minding the metrics,” Moebs advises.

An FI pays interest on checking to generate deposits, offers free accounts with the potential of revenue from user errors, incents seniors to increase funds on deposit, and gives checking away to retain the relationship or obtain money market accounts or time deposits. While other types of accounts may provide promotional opportunities, cost is dictating the design and design is limited to what will get checking portfolios to break even. And this leads to the benefits of technology to reduce costs.

Electronic Checking is the Future

Moebs notes that the USA Payment System is becoming much more electronic transaction oriented with the percent of ACH and debit card use in 2012 equaling what paper checks were in 2000 while paper checks are at the lowest level since World War II. “The Moebs Study points to the growth of electronic forms of checking with prepaid cards in the form of reloadable debit cards replacing the checking accounts of today. FI’s need to reduce the number and types of checking accounts to get their checking portfolios to break even in cost. This will aid in selling and user service. Getting back to basics takes time, energy and thought, but there is no other alternative if we’re to meet our customers’ needs cost effectively,” concludes Michael Moebs.

 

USA Payment System

Transaction Type:

2012

Checks

14.9%
Credit Cards 21.3%
ACH 18.0%
Debit Cards 38.3%
Prepaid Cards 7.5%
Transaction Volume 122.8B

Source: Fed 2012 Payment Study,

12/2014 and Moebs $ervice Analysis

About Moebs $ervices, Inc.

Moebs Services, an independent economic research firm established in 1983, collects statistically significant, primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition. Data is then analyzed in a counter-intuitive manner, resulting in solutions that make sense. Moebs is offering a special Risk and Pricing Program on February 10-12, 2014 in Palm Springs, CA. For more information, please visit www.moebs.com

Contacts

for Moebs Services
Liam Collopy, 510-635-4150
lcollopy@hardenpartners.com

Release Summary

A Moebs Services study found that Financial Institutions (FIs) are reducing the number and types of checking offers in order to cut costs and improve their staffs’ ability to sell.

Contacts

for Moebs Services
Liam Collopy, 510-635-4150
lcollopy@hardenpartners.com