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By Mike Branton
The battle is on among all banks to acquire new customers and their low-cost deposits. The key to winning the battle for low-cost deposits is owning the primary banking relationship and, in particular, the consumer checking account relationship.
The checking account is the central way consumers identify “their bank.” It is the only banking product that consumers use daily to navigate the intersection of their life and their money.
If this navigation is smooth, your bank is in the best position to collect even more deposits, loans and fee income.
Banks that understand this best have been successful at capturing primary banking relationships, which in recent years have been the four biggest U.S. banks. They are the ones investing the most to continue this trend and defend their success.
If you’re a community bank or even a regional one, a recent AT Kearney survey detailed the ways you are being attacked.
- The four biggest banks (Bank of America Corp., JPMorgan Chase & Co., Citigroup and Wells Fargo & Co.) have 40 percent of the U.S. consumers’ primary banking relationships. Superregional banks have 19 percent. The remaining 41 percent is split between other institution types, with credit unions at 14 percent, community banks at 12 percent, regional banks at 8 percent and relatively new direct banks like Marcus and Ally already at 5 percent.
- The four biggest banks are collectively budgeting more than $30 billion in technology investments, about one-third of which is on digital banking around the checking account.
- Digital channels drive 35 percent of primary banking relationship moves, while branches only drive 26 percent. The Big Four banks are capturing 41 percent of consumers that do switch their primary relationship. Superregional banks are capturing 28 percent. This leaves 31 percent for everyone else, and the new digital-only banks have 11 percent of that remainder.
Big Banks Rule
The reality is the biggest banks have the upper hand. The resources they are investing in digital platforms to maintain and increase market share can’t be replicated by community or regional banks.
But let’s not confuse the upper hand with the winning hand. Community and regional banks can fight back, because there is a chink in the armor of big banks.
While the digital experience provided by the four biggest banks may be superior, a review of the actual product benefits their consumer checking accounts provide isn’t that impressive. They are as ordinary as the checking accounts at most other banks.
Their checking lineups, terms and conditions are complicated with significant product overlap. They mask this weakness with an allure in the marketing and digital delivery of these ordinary benefits.
When smaller banks discuss growing consumer retail accounts, they talk more about acquisition pricing and marketing strategy, and not enough about first improving and simplifying products and lineups. Many banks start by spending on the promotion of unappealing, undifferentiated checking products at the lowest price in a confusing lineup. This isn’t a winning battle plan.
Smaller banks should first make their lineup simple for consumers to understand. The best practice here is a good, better, best methodology, which we have previously discussed in my article, Use Good/Better/Best for Checking Success.
While doing this, why not offer checking products as good, modern and different as you can afford?
Nontraditional Benefits Work
Recent research by Cornerstone Advisors, titled “Reinventing Checking Accounts,” shows how positively consumers respond to switching to checking accounts that include nontraditional benefits like cell phone insurance, roadside assistance and pharmacy/vision discounts alongside traditional benefits.
These nontraditional benefits are central to consumers’ lives away from the bank but can be captured in their checking account.
There’s no debating the importance of acquiring new checking relationships in gathering low-cost deposits. While the biggest banks dominate currently, are investing heavily in technology and paying handsome incentives to attract even more new customers, smaller banks can attack where these big banks are vulnerable.
Don’t fight them toe-to-toe with a complex lineup of look-a-like checking products. That’s a losing battle. Instead, focus on the appeal of a simple lineup and products that competing banks don’t offer. That’s a battle worth fighting, and one that can be won.