Reinventing Checking Accounts

In a recent study by Ron Shevlin of Cornerstone Advisors, commissioned by StrategyCorps, consumers are asked about their interest in a hypothetical Amazon-offered checking account bundle, and the results reveal a meaningful lesson to banks and credit unions – consumers are willing to pay for value in banking products.

Nearly half of 30-something Millennials said they would pay $5-10 a month for an Amazon checking account, including cell phone protection, ID theft protection, roadside assistance, travel insurance and product discounts. Less people from all age segments (Millennials, Gen Xers and Boomers) said they would open a free checking account from Amazon, without the bundled services.

This is music to Amazon’s ears. Why would they want to offer a free checking account when they can bundle the services of various providers on their platform – merchants and financial services providers – and charge a fee for it. A fee that consumers are willing to pay for.
— Ron Shevlin, Director of Research at Cornerstone Advisors

Almost 60 percent of people would at least consider switching accounts if their primary financial institution offered this same type of checking account. Plus, more people in fee-based accounts are referring their bank or credit union than those in free accounts.

At the risk of sounding melodramatic, free checking accounts are toast (or at least they should be). Financial institutions need to establish a new value proposition for checking accounts in order to produce a core financial product upon which FIs can build and grow their customer and member relationships.
— Shevlin

Shevlin not only describes the biggest threats to checking accounts, he offers a prescription for how mid-size financial institutions ($500 million to $20 billion in assets) can reinvent their checking accounts by phasing out free checking and instead bundling checking accounts with packages of value-added services targeted to specific consumer segments.

Cornerstone Advisors’ research study, commissioned by StrategyCorps, is packed with insights about how financial institutions can evolve their checking accounts to thrive in the new subscription economy. The complete white paper can be downloaded here