California’s largest credit union, Golden 1, continues promoting its free checking account. During March, 2012, a simple two-panel marketing flyer or buckslip is being distributed inside the branches in brochure holders located at the teller windows. While this is great news, the words “FREE CHECKING’’ are the smallest words on the front of the flyer as you can see below. And the words “Zero,” “Zip,” and “Zilch,” are not carried forward and explained on the back panel. This particular financial institution has, for years, had its own in-house creative agency which accounts for much of its mediocre creative like the piece shown here. It is very important that banks and credit unions offering free checking continue aggressively marketing the account through multiple marketing channels.
For the past two years, we’ve all heard the mantra: free checking is dead. It was widely assumed in the industry that free checking could not survive – or at least flourish – in the wake of the damage to its economic model produced by recent overdraft and interchange fee regulation.
To paraphrase Mark Twain, those reports of the demise of free checking have proven to be highly exaggerated. Let’s consider the facts as of September 2011. Although two-thirds of the largest banks with the majority of checking accounts nationally have changed account terms and fees, making free checking no longer guaranteed, they still provide a free checking product linked to simple and achievable behaviors, such as making a direct deposit once a month. Even after these pricing changes, 71% of all consumers in September 2011 still had free checking, which suggests a product not only far from dead but not even mildly wounded. Furthermore, unconditional free checking remains intact at most financial institutions with under $10 billion in assets.
So, why do we still hear the free-checking-is-dead chant? A cynic might argue that the chorus complements the bank-bashing bandwagon. Perhaps, but I propose that the answer has two parts grounded in fact. First, the word “free” has specific regulatory limitations in the financial industry affecting the language rather than account reality. And second, it is not well understood that “free” is a very sound economic and business strategy, not a revenue giveaway. I believe that these answers explain why free checking is thriving, and will thrive as one of the most successful services in the industry for years to come. Further, understanding the sound economics of “free” is critical to financial institutions’ product strategy.
Let me share why “free” is a proven and profitable marketing strategy for many products, including checking accounts, under four classic approaches:
Read More: BAI Banking Strategies
What effect does raising fees have on the customer? A negative one.
Tacking new fees onto existing checking accounts would get some 64 percent of customers to consider taking their business elsewhere, according to data published Monday by Bankrate.com. The poll of 1,006 Americans conducted by Princeton Survey Research also showed that the number of people who are not comfortable with their savings is growing and that financial security still remains.
The study found that adults earning more than $75,000 per year were most likely to move their accounts to a different bank because of fees, while 71 percent of those under 30 would choose a new financial institution as a result to added checking fees.
Read more: Bank Systems & Technology
At least one CU has begun to promote itself as a remaining source of free checking accounts.
The $837 million Unitus Community Credit Union, headquartered in Portland, Ore., has announced that it will continue to offer free checking and free online services even as other financial institutions begin to put fees on some of their accounts and services.
“Free checking and free online bill pay are important benefits to our members and we plan to continue both regardless of other changes in the marketplace,” said Unitus’ CEO Patricia Smith in a prepared statement.
Read more: Credit Union Times
The fear in shifting away from free checking, of course, is that customers will walk out the door. What reasonable consumer would want to suddenly pay for something that they’ve become accustomed to getting for free? This fear is not completely unfounded, as consumers repeatedly tell us that they really, really like their free checking accounts (to use a technical research term). In RFG’s latest round of national consumer surveys, we asked consumers to indicate what factors might cause them to switch to another financial institution. The number one reason cited by consumers was a change in free checking. Forget about deposit rates, loan rates, NSF fees, online banking, ATM or branch locations. Consumers indicated that they don’t care about those things nearly as much as they value their free checking accounts. More precisely, 39 percent of consumers indicated that they would switch financial institutions if you messed with their free checking. Granted, it is one thing to check a box on a survey and an entirely different thing to actually move an account, but the results clearly show the value that consumers place on free checking. In this era of consumerism and anti-bank sentiment, it may be a risky endeavor to test their fortitude.