By Robert McGarvey
Jaw dropping numbers from economist Michael Moebs and his consulting firm Moebs Services suggest that the end is coming, fast indeed, for the traditional checking (aka share draft) account. In 2011 there were around 700 million checking accounts, per data from NCUA, FDIC and the Federal Reserve.
Guess how many there are now?
According to Moebs the number in 2017 had fallen to 600 million – that’s a 12% drop.
Moebs added that it amounts to a drop of 2.2% per year.
A paradox is that, as the number of checking accounts fall, the balances have risen – in fact they have more than doubled since 2010 when they totaled $0.945 trillion. In 2017 they reached $2.110 trillion.
What’s going on here?
The answer matters because most credit union executives see the share draft account as the gateway for new members.
But if potential new members don’t want a share draft account that may be exactly the wrong sales pitch.
And is there money to be made on checking accounts anyway?
Balances, by the way, are climbing, said Moebs, because consumers feel significant uncertainty today and they want cash equivalents.
Here’s another curious number. Moebs told CU Today that credit unions in fact have gained 18.7% growth in numbers of share draft accounts since 2011. As banks have lost checking accounts, credit unions have gained. Cause for celebration?
Not so fast.
For starters, fintechs and non banks, from WalMart to Amazon, are galloping into many, many more checking-type relationships with consumers. Said Moebs in its press statement: “The number of depository accounts is declining from competition with fintech firms such as Walmart, Starbucks, and Apple.”
Moebs added that non banks now have about 12.4% of the checking market. And they are jubilant that they are lowering their interchange fees in the process. To them, this is more about attacking interchange than it is an effort to make a profit on depository accounts.
Big banks, meantime, are consciously, actively shedding many checking accounts. They will deny that they don’t want that business. But they don’t. Charging $10 to $15 in monthly fees is as good as giving a nudge to the exit door and many consumers are taking the hint.
Why don’t banks want that business? Moebs elaborated: “Depositories are shedding mostly single service households with free checking accounts with low balances and high transactions in favor of relationship checking accounts. Relationship checking is where there are two or more services with one consumer or business relationship.”
Remember that. The enemy of most credit unions isn’t Chase or Bank of America. Increasingly it is non banks.
Bottomline: well run banks are concluding that they can’t make enough money to be bothered when it comes to low balance checking accounts and consumers with no other relationships. When the consumer has a car loan, or a credit card (even better one with a balance), suddenly the path to profits is plain.
But a solitary, low balance checking account is not a pot of gold for financial institutions.
Non banks have other ways of making money from checking accounts – and they’ll take as many accounts as they can.
Meantime, most credit unions offer free checking (just about no big banks do). According to Bankrate 82% of large credit unions offer free checking. Probably similar numbers are found in smaller institutions.
Is that good business?
Just maybe it can be. It also directly ties into the credit union history of providing financial services to those who had been ignored by banks.
But – obviously – credit unions need to doubledown on a hunt for ways to make share draft accounts good for the institution.
And that will involve marketing more services to members. Smartly. Digitally.
Moebs also suggested that institutions need to focus on greater operational efficiencies in managing share draft accounts, to lower costs.
Maybe in fact there is money to made – and good to be done – servicing accounts that the banks just don’t want.
But credit unions will have to work hard at this.
Because if it were easy to make money from these accounts, the big banks would not be showing them the door.
What’s your plan? How will you make these members good for the credit union?
Those are questions that now need answering.