Full page magazine ad for Golden 1 with the headline, “The Power of Freedom.” Copy goes on to read, “Open a Golden1 Freedom Checking Account and get an ATM/Check Card.” Bottom right copy of ad reads, “You have places to go and so much to do. You can carry cash but it’s easier and more convenient to use a debit card. So, we’ve created a new account especially for young adults ages 16 and 17 who maintain a B grade average or higher. Golden 1 Freedom Checking can help you manage your own money.”
Free checking and debit card incentives are here to stay regardless of what happens with the Durbin Amendment because both continue to make sense for banks.
Fact No. 1: Net interchange revenue, the focus of Durbin, is only about 15% of the total revenue of the average DDA.
Fact No. 2: On average, 85% of revenue per account is directly related to debit card use.
Fact No. 3: Personal Identification Number (PIN) transactions are as profitable, or more so, than signature debit transactions and experience substantially less fraud losses.
Fact No. 4: Free checking is here to stay.
Read more: BAI
The nation’s largest banks are testing how much their customers are willing to pay for checking-account services that used to be free.
Bank of America Corp. and J.P. Morgan Chase & Co., the two biggest banks as measured by assets, have begun trying new fees in pilot tests from Hayward, Wis., to Newnan, Ga.
They include an account that charges a $3 monthly fee for debit cards. Another account designed for electronic-only banking charges customers a $12 monthly fee if customers go to a teller for assistance. In the test programs, some bare-bones checking accounts also now carry base fees ranging from $6 to $9 a month.
The new fees, which are limited to accounts for new and prospective customers in the pilot programs, can typically be waived if customers meet certain criteria.
The pilot testing is the latest indication of the push to boost fees as banks scramble to make up billions of dollars of revenue expected to be lost from new federal restrictions on debit cards.
The Federal Reserve in December proposed capping the amount banks can charge merchants for debit transactions at seven to 12 cents, from an average rate of 44 cents. The Fed’s proposal could reduce the revenue banks make from such fees, known as interchange, by 57% to $9.8 billion, according to CardHub.com.
Read more: The Wall Street Journal
Here’s a story that’s almost too good to be true. It’s your classic David versus Goliath story.
Instead of sitting back and remaining silent as the big mega-banks attempt to destroy the free checking account while adding new and higher fees to all checking accounts, the Long Island-based Bethpage Credit Union is taking action.
Not only did the credit union introduce its own free checking account last year, it recently launched a new website www.freecheckingforlongisland.com where consumers can go and voice their outrage over the actions of the mega-banks as they snatch free checking from the hands of their customers.
While on this site you can also learn more about the credit union’s new free checking account – Bonus Checking. Why they didn’t name it Free Bonus Checking or Bonus Free Checking is beyond me but at least they are aggressively promoting it as free checking.
Better yet, you can earn interest on your free checking account if you agree to online statements, direct deposit, and using your debit card at least 15 times each month. All of these requirements should be no-brainers for most customers.
According to the folks at Bethpage, “The demand for a free checking account is high on Long Island.” This should come as no surprise to those of you familiar with Long Island. This is Citibank territory – one of the four mega-banks responsible for attempting to bring about the end of free checking.
Apparently, the Bethpage free checking campaign is working as it has opened more than 33,000 free checking accounts since the middle of last year. That’s a tremendous jump in market share for a small credit union.
Let this be a lesson to all the community banks and credit unions across the country. It is possible to take on the mega-banks and win when it comes to free checking.
These mega-banks have handed you a golden opportunity to grab thousands of their disgruntled customers and make them your customers by simply aggressively promoting the fact that you offer free checking and plan to do so for years to come.
Now’s not the time to sit back and do nothing – to hoard your precious marketing dollars for better times ahead.
Please, take advantage of the turmoil in the checking account market and launch your free checking campaign today. As you can see – it’s paying big dividends for the folks at Bethpage Credit Union.
Attention financial writers – many of the articles over the past year about the pending death of free checking are based on erroneous information.
One of our goals with this site dedicated to the free checking account is to provide the truth about free checking. As a financial writer we trust you’ll visit this site when writing any articles about free checking or when free checking is mentioned. Should you have an inquiry that cannot be answered by one of the many articles on this site, please contact us immediately and we’ll provide the information to the extent possible.
As for information we’ve encountered in recent free checking articles, here are some examples of information that is wrong or misleading:
- The free checking account is on its way out, it’s dead.
- The free checking account was created or started by a major bank in Minnesota.
- The free checking account is unprofitable.
- The mega-banks have been offering free checking for years.
- Free checking was started by the big banks.
- Free checking attracts only the lower income consumer who keeps a low balance.
- Banks can’t survive if they continue offering free checking.
- Banks have to drop free checking because of loss of overdraft fee income, a reduction in debit card interchange fees, and predicted high compliance costs as a result of the Dodd-Frank legislation.
None of the information above is even remotely correct and should not be used when writing articles and blogs about the free checking account.
Free Checking is Alive and Well
About the only banks dropping free checking are the four mega-banks – Wells Fargo, Bank of America, Chase, and Citibank. Unfortunately, because of their combined market share and nationwide coverage, their actions dominate the media. Occasionally, another smaller bank will follow along because of the lemming instinct – if the big banks are dropping free checking, it must be the right course of action.
What isn’t being reported in the media are the thousands of smaller community banks and credit unions still offering free checking. Most of institutions have no plans to drop free checking – especially now. They now have a stronger competitive advantage over the mega-banks operating in their market areas.
The Free Checking movement was launched in 1982 in Lincoln, Nebraska
Free checking as we know it today started in Lincoln, Nebraska in 1982, with the launch of the Totally Free Checking and Free Gift marketing program. It was not a bank or credit union that created this unique account or marketing program – it was a direct mail vendor that specialized in marketing campaigns for small banks. So, in effect, free checking had its origins at hundreds of small, community banks across America.
It wasn’t until the late 1990s that the four mega-banks and other large banks began offering free checking. And they did so strictly as a competitive or defensive move. They were among the last banks to offer free checking and first banks to drop it.
The Free Checking Account is Profitable
Free checking is profitable for the thousands of community banks and credit unions that continue offering it. There are two primary reasons for this:
- They don’t have the prohibitively expensive branch networks like the mega-banks with their thousands of branches spread across America. The reason free checking isn’t profitable for the big banks is that they allocate these massive branch costs to their checking accounts using the overhead allocation model. In reality, these mega-banks shouldn’t be allocating much, if any, branch costs to their checking accounts. Why? Since the first ATM was deployed in 1969 at Chemical Bank, the big banks have been employing a combination of new technology and punitive pricing (charging customers to use the branch to make a deposit) to keep checking customers out of the branches. The Internet has made visiting the branch obsolete for most checking customers. So, if checking customers are no longer using branches, why should their accounts absorb the overhead costs for them? These fixed costs should be allocated only to the accounts still requiring branches – like CD’s, safe deposit boxes, loans, and investment services.
- By using a different cost allocation model, smaller community banks and credit unions look at adding new checking accounts from a marginal cost perspective – not the “all in cost” perspective of the big banks. Since almost all community banks and credit unions have unused branch capacity and small branch networks, their fixed costs are basically static. So, the revenue from a new free checking account needs only be sufficient to cover variable costs. Any excess revenue can then be applied to the fixed cost base – thereby driving down the fixed cost of all accounts. On the other hand, like the mega-banks, these smaller banks and credit unions shouldn’t be allocating costs to checking accounts when so few checking customers use branches to transact business.
Free checking accounts have been profitable for the community banks and credit unions since they began offering this account in the early 1980s – long before today’s high overdraft fees and lucrative debit card interchange fees. So, it’s disingenuous for today’s mega-banks to claim that recent government meddling in the pricing of overdrafts and interchange fee amounts has made free checking all of a sudden unprofitable.
Remember, the mega-banks didn’t begin offering free checking until they realized the account was wildly popular – even among the wealthy – and wasn’t going away. But, with the recent federal legislation, these big banks saw an opportunity to launch a campaign about free checking profitability in the hopes of forcing the smaller banks to drop this competitive account.
“Free checking is unprofitable and will soon be dead,” is the perfect media story to achieve the mega-banks’ ultimate goal of killing the free checking account. If they can’t have it – they don’t want their competitors having it either. And the mass media had bought into this “big lie” hook, line, and sinker.
The Mega-Banks were the Last to Offer Free Checking
As stated above, the community banks across America were the first banks targeted for the Free Checking and Free Gift program introduced in Lincoln, Nebraska, in 1982. Free checking got a major boost by Washington Mutual (WaMu) when it began its massive expansion program in the Pacific Northwest during the 1990s and into the new century – ultimately expanding to other states around the country. WaMu’s primary marketing focus was on its free checking account. It basically owned the free checking market in the communities it served.
It wasn’t until the late 1990s that the mega-banks reluctantly added free checking to their checking product line. And then, they did very little marketing of the account. Perhaps the most aggressive free checking marketer was Bank of America with its online banner ads. Adding free checking was primarily a defensive move to protect themselves from the aggressive free checking marketing conducted by the community banks and credit unions in all markets where the mega-banks had branches.
We saw how quickly senior management at Chase Bank dropped WaMu’s free checking account shortly after acquiring the bank as a result of the near collapse of our economy. This was done after first promising these customers that Chase would retain free checking.
Blaming this move on recent government legislation is simply a classic example of employing a red herring.
The Truth About Free Checking Can Be Found Here
In the future, should you be writing a blog or media story about free checking, you should consider interviewing senior management and marketing people working for one of the many community banks and credit unions offering the free checking account. They can tell you the true story about free checking and why it is so important for their success.
In addition, you should definitely contact one or both of the financial services vendors specializing in free checking marketing programs. Both are headquartered in Lincoln, Nebraska. One is ACTON Marketing and the other is Haberfeld Associates. Both have been in the free checking business since the early 1980s. They are the true experts when it comes to free checking profitability.