Checking – Dead or Alive?

By: Tom Bennett, Principal, Advisors Plus Consulting

The lowly checking account. Once the primary vehicle for member transactions, but now second fiddle to an assortment of payment alternatives. At least that is what many postulate and pronounce. Recently, we reported on the significant competitive developments that have occurred in the checking/debit arena. Based on resultant questions around the importance of checking, we felt it important to share our basis and state our contention that checking is as critical as ever and deserves more focus, effort and attention.

At the most basic level, checking is a vehicle for member growth. We see a direct correlation between member and checking growth. And why not, as it is the most widely owned product among CU members (outside of required share savings) and now sports a penetration rate of ~58%. Our research also shows that debit revenue (interchange and debit courtesy pay programs) drive half of non-interest income. Bottom line for credit unions – grow checking, grow members and grow non-interest income.

It is evident that a few others get this. Consider Chase, who is constantly stuffing most mailboxes with up to $600 offered for a new account. And the challenger banks who are targeting the U.S. as a lucrative market, with their primary basis for competing being checking/debit. Their stated rationale is that this is where the payment volume is today, and competition is less intense than for credit cards. They are right.

Why do we feel checking is as critical as ever? Aside from member growth, we see checking as the key linkage to overall payments. Checking is one of the only services where money can come in and out. Checking is the one service that connects to debit cards, ACH, bill pay, checks and even credit cards for the sake of making payments. It is the “clearing house” for all these transactions. And more connectivity is being made. P2P via vendors such as Venmo are generally funded from checking with a debit card, and cash out is generally received in checking via ACH. Emerging business disbursements for insurance and the “gig economy” ride the “faster pay” rails of Visa Direct and Mastercard Send to arrive via debit in the checking account. No other payment vehicle offers the flexibility and collective access of checking.

When viewed correctly, checking is as alive as ever. No product is as interconnected with the member relationship as checking. Not only do members need a vibrant offering from their credit union, but credit unions need their members to utilize their solution and maintain their role of trusted payment provider, while staving off current and future competitors.