LAKE FOREST, Ill.—Banks’ share of the checking market continues to decline, losing more ground to credit unions and now even to fintechs, according to a new report that forecasts even greater shifts are on their way.
“Banks are losing checking account market share to credit unions and fintech firms, such as Apple Pay, and others,” said Michael Moebs, economist and CEO of Moebs $ervices. “Why? Regulation, less free checking, streamlining of checking account offerings, moves to multiple account relationships, and more competition from payment systems. That’s what is changing market share.”
The Moebs Checking Market Share Study shows consumer checking totaled more than 340-million accounts at the end of 2010. The number of checking accounts increased 4.8% to more than 359 million by 2018. Of that volume, the Moebs $ervices’ data reveals banks’ share declined -0.8%, while credit unions spiked 39.9%.
“Banks lost a net of 2.1 million accounts from 2010, claiming none of the 16.9 million in checking growth since 2011,” Moebs said. “Credit unions netted 16.3 million new checking accounts and thrifts and fintechs the rest.”
Driving The Change
The Moebs study suggested several events have been influencing checking growth and shifts in market share dynamics.
“The Fed kicked off the decade with a revamping of the opt-in for overdrafts on checking. This opened up Pandora’s checking box, and to everyone’s surprise stimulated a huge growth in checking,” noted Moebs.
Michael Moebs
Unfortunately, he added, the Dodd-Frank Act and particularly its Durbin Amendment restricted debit card interchange for larger banks, those above $10 billion in assets.
“The large banks shifted away from checking to compensate for lost fee revenue due to Durbin,” Moebs said. “The big banks started stressing credit cards with rewards programs. Also, led by Bank of America, large banks reduced the type of checking accounts offered. Community banks, and chiefly credit unions, are picking up the discarded big bank checking accounts.”
Decline in Free Checking
Reacting to the moves by the large banks, more recently community banks and credit unions began moving away from free checking, as CUToday.info has reported. At the start of this decade free checking was offered by 75% of all financial institutions. By the end of 2018, free checking could be found in just 38% of all FIs, Moebs said.
“Relationship pricing took a stronghold at all FIs due primarily to the shift away from free checking,” said Moebs. “Relationship pricing relies on obtaining loans, deposits or other services and offering a no-charge checking account for one or more of these other financial services. With multiple services it makes it harder for a household or business to leave an FI.”
In the “background” of all these checking events is the rise of Apple Pay, Walmart, Starbucks … the fintechs Moebs pointed out.
What is the future of checking?
“The current checking decade started turbulently with regulations, yet accounts continue to grow. The Moebs Study views current trends continuing with less in checking at banks and more in credit unions and fintech firms,” Moebs said.
A Huge Impact
Banks started out the decade with 78.8% of the checking market. Credit unions had 12.2% with thrifts at 9.0%. By the end of 2018 credit unions rose to 16.3% with banks falling to 74.6% while thrifts remained unchanged.
“Dropping free checking will have a huge impact on the overall checking dynamics,” said Moebs. “Credit unions and community banks are leaving the checking door wide open for fintech firms to walk into bank and credit union branches, and escort consumers to their checking accounts,” said Moebs. “There will be major shifts in checking account market share in the remaining 20 months of the decade.”