LAKE FOREST, Ill.—A number of mega-banks are “eating the checking lunch” of over 9,000 banks and credit unions, says one economist.
Those nine banks control $864.3 billion in checking deposits, or 48% of all checking deposits, according to the latest Moebs $ervices checking study.
“Only a few financial institutions, 339 others to be exact, are keeping up with the nine big banks,” says J.V. Proesel, economist at Moebs Services.
Those FIs that are keeping pace, said Proesel, are doing certain things well and making the right choices. He said they are securing the big consumer and business depositors, or attracting large numbers of consumers and businesses that don’t have big deposit dollars with technology.
“The big banks are doing both of these things and are winning,” said Proesel.
A Tradeoff
However, there is a tradeoff between getting the big depositors, providing the latest and greatest technology, and keeping the financial institution’s costs in check, noted Proesel.
“Those who master this tradeoff are winning the checking business, and those who don’t in five years will still be driving their horse-drawn checking buggies wondering what happened,” he said.
Proesel said the big banks are relying on two key pricing tactics to win depositors of all types:
- High interest on checking. "These checking accounts usually carry high minimum balances. This is not reward checking,” he said.
- Relationship pricing. "This is where checking and at least one other service are linked together,” Proesel said.
“Some big banks will do both—high interest and relationship pricing on their checking accounts,” Proesel said.
Manage Technology
The big banks invest a lot in technology, emphasized Proesel.
J.V. Proesel
“This includes robust mobile banking via PCs, voice, and mobile phones,” he said. “This cutting-edge technology comes with a huge cost which is reflected in their overall high cost of checking. Offering superior websites and mobile phone communication is a hallmark of how the big banks get the volume of checking accounts they need to be successful and even large deposit customers.”
However, depositories with at least 100,000 checking accounts, can still compete by leveraging technology, after the banks perfect it, insisted Proesel.
“These financial services firms allow the big banks to be technology innovators and disrupters. By not being on the bleeding edge of technology, they can still keep pace by using it, yet incur lower costs as well as make fewer mistakes with advanced technology,” offered Proesel.
If a smaller player is to survive, said Proesel, volume is key.
“A depository, when possible, needs to get to 100,000 checking accounts and continue this growth. That appears to a critical break point in the checking study,” said Proesel, adding that “the days of loss leader checking are gone.”