smaller bank - Free Checking Information

PNC, Nation’s Sixth Largest Bank, Keeps the Free Checking Account

March 7, 2011 by Mike Leave a Comment

Refusing to follow the lead of the four mega-banks, senior management at Pittsburgh-based PNC Bank announced recently that it will continue offering free checking to its customers. According to the article below, approximately 70% of the bank’s customers have free checking. PNC Bank should serve as a good example for those banks and credit unions that are currently pondering which decision to make as it relates to the future of the free checking account. Banks like PNC have much more credibility than the mega-banks when it comes to doing the right thing for its customers.

The article below by WSJ senior financial writer Robin Sidel first appeared on the WSJ online website on March 1, 2011. It’s the first media story about a big bank refusing to follow the lead of the four mega-banks that have abandoned their free checking customers by eliminating the popular free checking account. With approximately 70% of its checking customers having a free checking account, senior management at PNC decided keeping free checking was the right thing to do for its customers.

“Checking Will Stay Free, Says PNC Bank”

By Robin Sidel
March 1, 2011

“PNC Financial Services Group., bucking a trend that is sweeping the banking industry, is vowing to keep its most-basic checking accounts free of fees.

“The Pittsburg-based regional bank on Tuesday is expected to start notifying its five million checking customers of changes to some of its accounts, which won’t include any new fees. But the free checking comes at the price of other perks: Basic accounts will no longer enjoy debit-card rewards, and non-PNC automatic-teller-machine fees will no longer be reimbursed.

“PNC, the nation’s sixth-largest bank as measured by assets, with 2,470 branches in 14 states and $183 billion in deposits, is the latest bank to overhaul its checking account ahead of a new federal law that restricts the amount banks can charge merchants for debit-card transactions. PNC has estimated it could lose $800 million a year from the new rule, which is set to kick in this July.

“The move by PNC comes as its biggest rivals eliminate the free checking accounts that have been commonplace in banking since the 1990s. Bank of America Corp and J.P.Morgan Chase & Co. are among the banks that have put free checking on the chopping block and are testing a slew of new accounts around the country.

“Many smaller banks and credit unions, which typically offer the lowest-priced accounts, also are considering tacking on fees. TCF Financial Corp., a Wayzata, Minn., bank that paved the way for free checking in 1986 and used ‘totally free checking’ as its slogan, eliminated its free checking account last year.

“PNC is hoping to make up some of the debit-card revenue that will be lost by attracting customers from other banks and driving existing customers to fee-based accounts that offer more products and services, such as better rates on loans.

“So far, customers have shown relatively little sensitivity to fees. A new retail-banking study from J.D. Power and Associates found that while more customers are shopping around for and switching their banks, fees aren’t the primary drivers of their decisions.

“The survey, which is expected to be released Tuesday, found that 8.7% of 4,791 bank customers said.

They had switched their primary banking institutions in the past year, up from 7.7% in 2010. Just 17% of the customers, however, cited fees and rates as reasons for the change. That represents a slight increase from the 16% recorded last year.

“Consumer behavior could change, since banks have only recently implemented new fees as they scramble to deal with the new debit-card rules enacted as part of the Dodd-Frank financial overhaul last year. The Federal Reserve has proposed capping the amount banks can charge merchants for debit transactions at seven to 12 cents, from an average rate of 44 cents.

“The banking industry is fighting the proposal and hopes for a delay or change before it takes effect in July. Bank executives have said the new limits will force them to shift the costs of offering debit-card rewards to customers by adding fees and reducing benefits.

“‘What we don’t want to do in the short run is to punish our customers for something they didn’t have any control over to start with,’ said Joseph Guyaux, who is president of PNC and oversees its retail-banking business.

“He estimated about 70% of the bank’s customers have free checking, saying, ‘going from that to no free checking made no sense for us.’

“PNC said, as of September, it will stop offering rewards on debit cards that are tied to its low-end accounts, including the free-checking account. Other banks, including J.P.Morgan and U.S. Bancorp, are also cutting back on debit rewards because the programs are expensive to maintain.

“In another cost-saving move, PNC will stop its five-year old practice of reimbursing those customers who use non-PNC ATMs for the $1 to $2 typically charged. The bank expects fewer than half its customers will see an impact on their debit rewards or automatic-teller-machine fees.

“PNC says the account changes, which take effect later this month and again in September, include lowering minimum-balance requirements on two of its existing fee-based checking accounts in an effort to encourage customers to move their funds into those products that include more features than a bare-bones account.

“PNC also is planning to introduce a prepaid, reloadable card for lower-end customers in June. Other banks also are introducing prepaid cards for customers whose checking accounts carry low balances, making them less profitable for the bank.

“The bank also has reduced restrictions on its online and mobile bank account to encourage greater use by its mainstream checking-account customers. The product, called Virtual Wallet, previously had been mostly targeted to young adults.”

Some Truths About Free Checking

February 15, 2011 by Mike Leave a Comment

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.

At Many Big Banks, No More Free Checking

February 4, 2011 by Mike Leave a Comment

Reversing a trend that began in the mid-1990s, big banks are imposing new fees on their least-profitable customers — those who want just a bare-bones checking account.

Those who can’t maintain fat balances, or who don’t use other services that would make them more lucrative to a bank, probably will need to cough up about $100 a year if they want to stay put.

The country’s four giant banks — Bank of America, Wells Fargo, JPMorgan Chase and Citibank — are already phasing in the charges, and large regional banks are expected to follow suit.

The upshot: If you’re not prepared to stockpile cash in a checking account, be prepared to pay a monthly fee or to take your money to a smaller bank.

Free Checking – It’s Alive

February 4, 2011 by Mike Leave a Comment

August 15 has passed and the Reg E Amendment has impacted bank revenues less than expected. Yet, the media drumbeat of “free checking is dead” continues. Of late, publications like the Philadelphia Inquirer have stated, “No-strings free checking is now very hard to find.” In addition, the Miami Herald said, “The free account is a dinosaur.” TheNew York Post also published an article that shows the impact on checking-related fees consumers have seen recently.

For community banks, “free checking is dead” spells opportunity. On November 1, 2010, the South Florida Sun-Sentinelreported, “More banks drop free checking as they take a hit on fees.” The article provides the following recommendations to consumers: “Sign up for direct deposit; do more banking online; use your debit card more; link with other accounts; and maybe, switch to smaller banks or credit unions where free checking is more common(emphasis added).”

Continue reading… from Haberfeld Associates

Free Checking Is Alive and Well

January 28, 2011 by Mike Leave a Comment

Attention bankers and consumers: Free Checking is alive and well and isn’t going away anytime soon!

On the other hand, if you believe a majority of the media stories on the future of the free checking account, you would already have come to the conclusion that your valued free checking account is going the way of the land-line phone, the cassette tape, vinyl records, and the dinosaur.

It will soon join the savings passbook and free checkbook cover in the museum of consumer banking antiquities.

Don’t believe it. These media stories are simply missing the bigger picture. The writers behind these stories have bought into the big lie being told by spokespersons working for the four huge mega-banks. These banks quickly made the decision to put fee income ahead of the needs of their checking customers.

Unfortunately, a handful of bankers managing smaller banks have taken the bait and are eliminating free checking at their banks. Perhaps they’ve already forgotten that they don’t enjoy the “too big to fail status” of the mega-banks.

Contributing to this free checking doom and gloom scenario are a handful of consultants to the financial services industry with a vested interest in the demise of free checking. You see, these door to door peddlers are calling on banks and credit unions – trying to sell them an expensive consulting contract to realign their checking account portfolios. To gain an audience, they needed a hook.

The free checking is dead storyline is the hook being used by these consultants to get an audience with the CEO and his or her marketing minions. It’s a scare tactic that is being used successfully on the lesser informed bankers as it relates to checking account profitability.

The nascent free checking is going away movement quickly caught fire as a result of the recent deluge of legislation coming out of Washington that is having a major impact on consumer banking. First it was onerous credit card legislation. This was quickly followed by the overdraft opt-in legislation with its dire predictions about the loss of fee income. Next came the dreaded 2,200+-page Dodd-Frank Wall Street Reform and Consumer Protection Act giving legislators an almost unlimited hunting license to meddle in the consumer banking business.

Almost immediately bankers were warned that the government would be looking to drastically reduce interchange fees on debit card transactions at the point-of-sale.

It’s this growing assault on fee income that has the mega-banks scrambling to dump free checking while adding more fees on existing accounts and replacing free checking with new fee-based accounts.

Oddly, the free checking movement has its roots in the smaller community banks and credit unions located throughout the country, not the big banks. In fact, the mega-banks were slow to embrace free checking. They did so only after realizing that free checking wasn’t going away. So, in reality, their hearts were never in free checking. To them, free checking was simply a defensive move. The recent assault on fee income provided them with the perfect reason for dumping free checking.

Because of their immense size, commanding market share, negative publicity over their role in the recent economic downturn, use of TARP funds to survive, and now being the face of the foreclosure crisis, their collective decision to dump free checking quickly grabbed the attention of the media.

It’s easy for the media types to quickly jump to the conclusion that if the mega-banks drop free checking then all the other banks and credit unions will have to follow along – as if these four big banks were somehow the arbiters of checking account products.

By dumping free checking, it opens them to renewed checking competition from the smaller community banks and credit unions. While they would never admit it publicly, you can bet the folks running the mega-banks understand their vulnerability should the free checking account retain its support among the legion of community banks and credit unions operating in the same market areas as the mega-bank branches.

Let’s not let the big mega-banks kill the free checking account.

The purpose of this free checking website is to provide community bankers, credit union management, and financial media writers a gateway to as much information as possible on the rationale for retaining and aggressively marketing free checking.

Millions of hard-working Americans are depending on you to continue supporting the free checking account.