Consumers added 24.1 million new checking accounts in 2020, and credit unions grabbed a hefty share, a new study reveals.
In a pandemic-wracked season, the number of consumer checking accounts topped 408 million, an increase of 6.3%—and CUs’ share of this market jumped 1.7%.
“This is unprecedented for any financial institution group to gain this amount of market share in one year,” said Michael Moebs, economist and CEO of Moebs Services. “Driven by fear brought upon by lockdowns and stay-at-home restrictions, the consumer has been warehousing funds since the onset of the pandemic. Deposits have expanded significantly with stimulus payments and the consumer has been diversifying the deposits by opening more checking accounts.”
Moebs said the findings were surprising in a year when many, based on previous economic downturns, expected checking growth would remain stagnant. Moebs suggested several key factors caused the expansion: population growth, checking usage, and COVID-19.
“In the Great Influenza of 1918-20, the U.S. population had its first and only dip in population growth. It was easy to justify the same would happen with the coronavirus pandemic,” said Moebs. “As often happens with trying to predict the future by charting the past, the U.S. population grew in 2020. The nation added 902,000 people last year. This is about half of what the typical population growth has been, but significant since it was an increase not a decrease during a health crisis.”
Where the Growth Came From
Moebs pointed out it’s not people over 18 entering the workforce, minus deaths, who are accounting for all the new checking accounts.
Instead, growth in checking mainly came from current checking holders adding a new checking accounts, said Moebs, who said that prior to 2019 the Moebs $ervices Checking Reports show there was actually a decline in the number of checking accounts per household, from 1.52 in 2011 during the Great Recession era, to 1.43 at the end of 2018. 2020 ended up at 1.62 checking accounts per household.
“This is a 13.2% increase after a decline of 6.3% for years,” said Moebs. “What the American consumer did was store $4.1 trillion in deposit accounts at financial institutions, with $2.4 trillion, or 58.5%, going into checking. Yet fear of job loss and financial hardships moved the consumer to diversify their holdings, thus adding another checking account at another insured depository.”
Moreover much of the stimulus money remains unspent, held in reserve to weather the potential final storm, Moebs said.
“There is no doubt the consumer will spend. Airlines, hotels, remodeling and many more activities have built up for the consumer,” said Moebs. “Let alone, watching basketball and baseball at a bar or restaurant and meeting a friend over coffee will stimulate the individual and economy after this long ordeal.”
The Big Question
The big question, now, asserts Moebs, is how do banks, savings banks, credit unions and fintechs keep some of the $4.1 trillion on deposit?
“Checking was the strategy leading into COVID, and it will be the strategy showing the way as life after COVID returns,” said Moebs. “First, and most important, financial institutions need to know who they want to keep as checking users. Secondly, target the amount of deposits to be retained. Finally, FIs need to completely redesign checking. Rewards are not a sufficient answer, for this is hard cash time. Proper fees, rates and balances for checking are the solution.”
Strategy for Success
Can banks, credit unions, savings banks, and fintechs redesign checking to solidify relationships from COVID dollars? Moebs said financial institutions need to think in terms of transaction accounts, and transactions themselves.
“This strategic concept is essential in designing the transaction account of the future. Fees, rates and balances must be intertwined with the transaction account design resulting in one or two transaction accounts offered by people trained and compensated like lending staff,” said Moebs. “First reduce the number of checking offerings. Second, restructure pricing. This means reduce fee prices, offer competitive rates, and keep the number of balance tiers or tranches to a minimum. Finally, do not have tellers opening and closing checking accounts. Treat checking like loans and have trained relationship personnel dealing with members—and, this does not mean training tellers to be salespeople.”
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| Michael Moebs |
Moebs said the findings were surprising in a year when many, based on previous economic downturns, expected checking growth would remain stagnant. Moebs suggested several key factors caused the expansion: population growth, checking usage, and COVID-19.
“In the Great Influenza of 1918-20, the U.S. population had its first and only dip in population growth. It was easy to justify the same would happen with the coronavirus pandemic,” said Moebs. “As often happens with trying to predict the future by charting the past, the U.S. population grew in 2020. The nation added 902,000 people last year. This is about half of what the typical population growth has been, but significant since it was an increase not a decrease during a health crisis.”
Where the Growth Came From
Moebs pointed out it’s not people over 18 entering the workforce, minus deaths, who are accounting for all the new checking accounts.
Instead, growth in checking mainly came from current checking holders adding a new checking accounts, said Moebs, who said that prior to 2019 the Moebs $ervices Checking Reports show there was actually a decline in the number of checking accounts per household, from 1.52 in 2011 during the Great Recession era, to 1.43 at the end of 2018. 2020 ended up at 1.62 checking accounts per household.
“This is a 13.2% increase after a decline of 6.3% for years,” said Moebs. “What the American consumer did was store $4.1 trillion in deposit accounts at financial institutions, with $2.4 trillion, or 58.5%, going into checking. Yet fear of job loss and financial hardships moved the consumer to diversify their holdings, thus adding another checking account at another insured depository.”
Moreover much of the stimulus money remains unspent, held in reserve to weather the potential final storm, Moebs said.
“There is no doubt the consumer will spend. Airlines, hotels, remodeling and many more activities have built up for the consumer,” said Moebs. “Let alone, watching basketball and baseball at a bar or restaurant and meeting a friend over coffee will stimulate the individual and economy after this long ordeal.”
The Big Question
The big question, now, asserts Moebs, is how do banks, savings banks, credit unions and fintechs keep some of the $4.1 trillion on deposit?
“Checking was the strategy leading into COVID, and it will be the strategy showing the way as life after COVID returns,” said Moebs. “First, and most important, financial institutions need to know who they want to keep as checking users. Secondly, target the amount of deposits to be retained. Finally, FIs need to completely redesign checking. Rewards are not a sufficient answer, for this is hard cash time. Proper fees, rates and balances for checking are the solution.”
Strategy for Success
Can banks, credit unions, savings banks, and fintechs redesign checking to solidify relationships from COVID dollars? Moebs said financial institutions need to think in terms of transaction accounts, and transactions themselves.
“This strategic concept is essential in designing the transaction account of the future. Fees, rates and balances must be intertwined with the transaction account design resulting in one or two transaction accounts offered by people trained and compensated like lending staff,” said Moebs. “First reduce the number of checking offerings. Second, restructure pricing. This means reduce fee prices, offer competitive rates, and keep the number of balance tiers or tranches to a minimum. Finally, do not have tellers opening and closing checking accounts. Treat checking like loans and have trained relationship personnel dealing with members—and, this does not mean training tellers to be salespeople.”
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