What Is The Next Checking Account?

I believe we are definitely at one of those milestone moments in the banking industry where we have experienced fundamental change and, as a result, banks are reevaluating core products, services and technology. One product that has become more and more important through this change is the basic checking account, which provides low-cost funding for our core deposits.

Over the past several years, we have seen the checking account go from the club account to the relationship account to free checking to reward checking. As core deposits are becoming more coveted these days, the big question is “What is the next checking account?”

The question becomes even more challenging because the change is not the result of a standard progression of product development that occurs over a lengthy timeframe due to the natural evolution of the marketplace but rather development as a result of major economic and sociological shifts that have been abrupt and sudden. We have experienced radical changes in consumer preferences and behaviorism as well as unparalleled legislation, impacting bank strategy, account economics and profitability models.

One of the benefits of recession has always been innovation, and this recession has been no exception. The banking industry has had many technology products and services in waiting; the financial squeeze of the recession has accelerated adoption of these products and services due to the efficiencies they offer in operations and the benefits they offer to the customer.

For example, mobile banking is no longer out at a distance but rather here and ready to launch mobile payments. Remote deposit is no longer limited to small businesses; it is now for consumers and can be facilitated through the mobile phone. Online applications and funding are not just for ING Direct but rather will be a part of all online banking centers. Personal financial management tools will no longer be limited to just mint.com and the cool PNC Virtual Wallet but rather an integral and fundamental part of the banking relationship as customers look for a financial ally. These are all major developments that impact the entire banking relationship and should impact the way we view the next checking account.

So how do we get more core deposits? What is the “next checking account” and what will it look like?

As a result of a lot of research on this subject, I feel pretty confident that it will be different than what we have seen over the past 10 to 15 years—something more highly responsive to changing consumer preferences and the escalation of technological adoption among banks.

It will not be the club account because the majority of people are just too smart to pay a monthly fee for an account that offers items that are now free at most banks, rarely used and have very little perceived value to the average on-the-go customer (anybody can book travel online at a discount).

Some form of a relationship account will still be valuable to an upper segment of the marketplace (that will be a small niche for most banks). Yet, this account will be much more technology loaded, and will rely less upon the personal banker and more on the efficiency of online tools and personal financial management tools.

The entire model of the free gift + free checking account will have to be reviewed due to the account economics. No longer will banks be able to afford to subsidize marginal accounts (estimated at 40% on average) due to the lack of NSF fees from new regulations. Therefore, free checking accounts will need to be restructured to offer the “free” benefit to the customer in exchange for certain usage behavior (i.e. bill pay, e-statements, direct deposit or mobile banking) that lowers operational expenses, increases average balances and increases retention. Otherwise, free checking will only result in a negative margin for the bank.

Reward checking (primarily a BancVue product) has had good success over the past few years, primarily due to an above-market rate to get the attention of the consumer. Some of the presuppositions of this account are accurate. They encourage the customer to adopt certain service behaviors for the premium rate. As a result, the bank gets the benefits mentioned above in an effort to justify the premium rate. I think there will still be a market for this product (primarily the same market that wants great CD rates), but the changing consumer preference for greater simplicity and greater transparency will hinder the effectiveness of this product moving forward. The industry will need to move away from the “fine print” perceived as hidden terms or bait-and-switch offers to a more direct and simpler presentation of a checking account.

So, what is the next checking account? Well, I believe the next checking account is evolving to be more of a core banking product than just a core deposit product. As we move forward, the term “checking” and the idea of checking will continue to dissipate. The customer and the marketplace are comfortable with these terms, but they will eventually give way to alternative terms that refer to the product and the brand and not the idea of checking.

Therefore, the next checking account will not be called a checking account at all, and it will be designed around customer preference and the priorities of convenience, technology and simplicity.

While convenience has always been a factor for a banking relationship, the idea of convenience is rapidly changing. Proximity to the branch is not as important as it once was, and geography is becoming increasingly irrelevant. While brick and mortar will always exist and banking hours will still be important to the customer, convenience will have more to do with technology than it will anything else.

Technology will be a primary factor to the new core banking product. It will not only include the basics of internet banking with bill pay, direct deposit and e-statements but much more. Mobile banking with e-alerts and mobile payments will rush to the forefront as important to the consumer. Consolidated and aggregated account information combined with personal financial management tools will be required alongside the ability to customize and personalize online interaction with the bank.

The new core banking product will also require simplicity in communication. The marketplace has long felt that banking products were complicated and that there was too much fine print in the product offerings. Free didn’t always mean free and rewards were not always rewarded. Therefore, moving forward, product names and offerings will need to be more consumer-friendly and easy to understand. They will not possess pages of disclaimers on the product but rather short and simple statements that can be easily understood. They will no longer be unilateral in development but rather bilateral as the customer communicates through social media what they want and like. However, simple and straightforward will not mean boring, plain and vanilla but rather innovative and creative. The best creative concepts will always be the most simple and easy-to-understand ideas.

So, what is the next checking account? Well, it will not be a checking account but rather a core banking account. It will be an account designed in collaboration with the customer. It will be an account that is convenient, has the latest technological services and products, and is very straightforward and simple to understand. To create that next checking account, don’t. Create a core banking account by listening to your customer, keeping up with technology and keeping it simple to understand.