Jun 04, 2012

By Brett King

Bye Bye Checking (and Current) Account

I’ve been recently debating with bankers and credit union executives on the core banking proposition they offer to new prospects. One of the realizations that led me to this was some recent research released by <a href=”http://www.aitegroup.com/Reports/ReportDetail.aspx?recordItemID=899″>Aite Group around the ‘debanked’ generation</a> (Feb, 2012). In March 2011, I released a <a href=”http://www.youtube.com/watch?v=DMcGHLgTV74″>YouTube Video</a> discussing the same segment of customers (as yet unnamed), and suggested that prepaid debit cards, mobile wallets and mobile payments would be extremely disruptive to the nature of basic day-to-day banking. All evidence points to the fact that this shift is already underway.

<strong>Is it more than nomenclature?</strong>

One of the key problems banks face, particularly in the US, is that the core bank account is designed around an assumed behavior that, while normal in the 80s and 90s, now is largely an anachronism. The ‘checking’ account in the US, is essentially built around the assumption that writing a check is still a core behavior for most banking customers. However, for the “debanked” generation and the Y-Gen, writing a check is not normal behavior, in fact, in most cases Y-Gen consumers have never written a check in their life. Looking at check usage in the US is prescriptive:
<li>Check usage has been in decline in the US since 2003 at the <a href=”http://www.federalreserve.gov/newsevents/press/other/20101208a.htm”>average rate of 6.1% annually</a> (Source: Federal Reserve)</li>
<li>Check use in retail has declined from 77.1% in 1995, down to just 4.3% in 2010 (Source: NACHA)</li>
<li>Check volume has declined from 38 Billion in 2003 to an estimated 21.5 Billion in 2012 (Source: Federal Reserve)</li>
<li><a href=”http://bankingblog.celent.com/?p=1462″>Celent predicts</a> the decline in use of checks is actually speeding up and will top 20% annual reduction shortly</li>
<li>At that rate by 2018 personal check use in the US will be less than 3% of all non-cash payments</li>
Thus, if you’re trying to attract new customers and you’re leading with ‘checking’ you have a fundamental problem. Promote a checking account to a digital native or a Y-Gen and they’ll immediately assess the account as unsuitable, not for them. That’s an account my “Dad’ used when he was younger, but it’s not for me.

It matters nought that you offer those checks for ‘free’, because if I’m never going to write a check in my life, or if I fundamentally prefer to do my banking and payments electronically via web or mobile, then a “checking account” is totally and utterly irrelevant.

Why would I ever bank with a bank that offered a checking account?

<strong>Isn’t it about time we changed the name of the account?</strong>

So let’s start with the basics. If you’re offering accounts to newly banked consumers, or to the next generation of customers now entering college and the workforce, you should forget ‘checking’ or ‘current’ account nomenclature entirely. Feel free to offer checks as an option, but it’s not what banking is about any longer.

Call a bank account a <em>checking</em> or <em>current</em> account and you are describing the utility or operation of the account, and for many prospects that simply doesn’t make any sense or hold any affinity to the way they behave as respects day-to-day banking and payments. You’d be better off calling the account a <strong>debit card account</strong>, <strong>day-to-day banking</strong> or just a <strong>bank account</strong>. The split between current and savings accounts is even redundant, especially in a zero interest rate environment. Just offer one basic bank account, with a debit card, internet and mobile banking as standard.

This is the new benchmark in basic banking.

Forget checks. Forget the current and savings account split. Just give me a bank account.

Free checking means nothing if I never write a check!

<strong>What about “Savings Accounts” then?</strong>

Savings accounts still have a role to play. Increasingly, however, we’ll need to simply enable a savings ‘bucket’ with the option of fixed deposit or monthly savings plan for a better interest rate, or enable customers to label the account for a specific purpose or goal. In this case, Savings denotes a function or the utility the bank is providing attached to the money and is appropriate. Checking and Current don’t hold the same value from a utility perspective.

Basic banking behavior is changing. Our attachment to our money is stronger than ever, however. So connect me with my money, but understand my behavior. The bank account you’re trying to sell me should fit my behavior today, not the behavior of customers you had in the 1980s.

It’s time to change the way we brand basic day-to-day bank accounts.

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