Thursday, December 9, 2010
Important Changes to Your Checking Account - Checking Fees & Branch Attractiveness
We think the death of "free checking" is the greatest marketing opportunity since the invention of the giveaway toaster.
Those who are truly retail oriented will do well, and traditional banks will not. Why not? Because most big commercial banks don't understand the retail impact of charging significant fees, every month, for something that was once provided free - and how such a move can make branches less attractive than nearby and online options and cause defections of solid relationships, not just cherry pickers (single service, low balance free checking customers).
Presented for your inspection, one Chase Bank. We think that Chase has perhaps considered, but not calculated, the valuable business it will lose to nearby branch competitors by going from $0 to $120 annually for a Checking account. In other words, it doesn't seem like they did any focus groups to find out that we all go ouch at 10 bucks; nor have they conducted a gravity analysis that includes the institution of the new fees as an attractiveness variable, along with all other things geo and geodemographic, to see what might happen competitively, branch trade area by branch trade area, as everyone changes their prices at the same time.
Chase is a commercial banking culture and they are relying largely on inertia here, the inherent difficulty in changing Checking account providers. There is an old rule in retail banking that whenever one raises fees, one provides at least 5 different ways for customers to avoid those fees. Chase has provided four, and they have holes in them.
Direct deposit $500 or more each month, which is fine if your employer supports that, but it doesn't really work for small business or many other people.
Or, keep a minimum DAILY balance of $1,500, which means you will trigger the fee if your Checking balance goes below $1,500 at any time, which means you have tied up $1,500 in a zero-interest account and lose any investment opportunity associated with it.
Or, maintain an average monthly balance of $5,000 or more at Chase, deposit-driven and not very young household or family-friendly.
Or, already be paying $25 or more to Chase in monthly fees.
Those are the commissions, among glaring omissions are not waiving the fee for customers with an auto loan who autopay, nor creating any other ways for transaction and credit driven households to avoid the fees.
At RPM, we are currently using GIS to predict what the outcome of "the death of free checking" will be at the branch level, associating all of the fee changes for each competitor for every branch in our national BranchInfo branch performance and locations database, and using the new fees as an input to calculating store attractiveness in branch trade areas.
And what we are beginning to see is the potential for a major shift towards the first big bank retailer(s) that act(s) like one in 2011, as many people figure out how to make smarter banking choices along the routes they travel every day. And increasingly, location-based marketing will push messages to the fee averse based on their location when they come within range of a significant differential, where one competitor may be ranked significantly better or worse on the basis of fees and ultimately, value. (To keep up with location based tecnology trends, be sure to visit the RPM blog.)
Chase is just one example, and has hired some great retail banking people, but do they have the research, the tools and the technology to deal with this? Do you?