The Non Bank Threat to Sharedraft Accounts: Why Your Lunch May Be Eaten


By Robert McGarvey


For Credit Union 2.0


You already know that non banks are fast in a race to seize a majority of home mortgages but the far, far worse news is that non banks may soon be grabbing your sharedraft business.

Credit unions have options. They can win this. But that will involve big changes in mindset.

Here’s a nudge towards that new reality: in November, the acting Comptroller of the Currency, Keith Noreika, said he believed it was time for a fresh debate on the role of non banks in traditional banking. Implied was an endorsement of a possible role for companies like WalMart in banking.

The current Comptroller of the Currency, Joseph Otting, has been on record supporting similar.

One more reason to worry: evidence mounts that a sizable slice of the population, mainly but not exclusively millennials, has been moving money out of banks and into other parking places. They are finding that just maybe they can get along fine without banks and credit unions.

Don’t assume a credit union future is a given. Ten years ago how many book and record stores realized they were at the end of the line?  How about consumer electronics stores? Now even grocery stores seem on life support, as WalMart on the one hand and Amazon-Whole Foods on the other seem primed to devour the market.

Banking services are very much in play.

Probably the most cogent arguing on this issue is from Ron Shevlin, now with Cornerstone Advisors. In a Snarketing post Shevlin points out that “the percentage of US households without a checking account dropped from 8.2% in 2011 to 7% in 201, and since 2000, deposits at banks have tripled.”

So,that means things are good? Nope. Shevlin continued: “there is a longer-term trend that will hamper financial institutions’ efforts to keep up the recent pace of growth. I have a name for this trend: deposit displacement.”

His point: huge volumes of money are shifting out of traditional checking and sharedraft accounts and into new vehicles such as health savings accounts, P2P tools such as PayPal, retailer mobile apps (think Starbucks, whose customers are believed to have multiple billions of dollars parked in their apps), also robo-advisors.

I’d add to the list the rise of prepaid debit cards which a growing number of consumers are using as a replacement for both credit cards and sharedraft accounts. Many billions of dollars already are funneled quarterly through the popular Visa and Mastercard prepaid debit card channels.

Personally I’ve had a Bluebird card, via Amex, for some years. It even comes with a checkbook option. 

I also use PayPal multiple times monthly, to pay some recurring charges (Netflix, NYTimes) and to put money in the hands of relatives and friends.

An advantage of options such as prepaid debit cards and P2P tools: most involve no credit check. Set up is nearly instant. The friction has been removed from the system.

Go ahead and attempt to open a new sharedraft account at a credit union near you where you have no present relationship. Word of warning: it won’t be easy. And it may be impossible to do it online. Just sayin’.

Why is money moving out of checking accounts? Simple: there often is no benefit to the member in keeping money in that account. And many accounts involve all manner of fees deemed sneaky by many consumers.

Try to use a prepaid debit card to buy groceries at Safeway and if the attempted charge is over the balance, there’s only a little embarrassment as the checker says the card has been declined. Try to pay with a checking account and there is maybe an overdraft fee of perhaps $35. For what? A few bits and bytes burping in the matrix?

Warned Shevlin: “Deposit gathering for all financial institutions will become more difficult over the next five years, as this trend toward deposit displacement accelerates. Combating deposit displacement means reinventing checking accounts.”

Read that again. It’s time to re-invent checking and sharedraft accounts. Burn the fees. Banish the friction. Make the accounts easy to use, easy to initiate, easy to predict the costs involved. Create incentives for use of the sharedraft account.  

Does your credit union offer a prepaid debit card option? Few do. But many, many big banks do, from Chase to Wells Fargo.

Navy Federal wins kudos for offering a prepaid debit card. How many other credit unions do?

Best advice: urgently slate a meeting to reinvent your sharedraft account. That’s just about the only way to stop the displacement of funds that Shevlin warns about. It will happen unless you take prompt steps to stop it.


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