Checking’s New Role as a Digital Hub

Many younger consumers have never written a check, and probably never will, yet their checking accounts remain a primary hub for them. As new technologies and apps lead consumers to use these accounts very differently, banks and credit unions need to rethink their checking strategies, especially how they generate revenue.

Now that checks have become the payment method of last resort for most consumers, many industry observers argue the term “checking account” is a misnomer and that these accounts — at least as we have known them — will no longer exist in the coming years.

While checking accounts remain central to consumers’ lives, they’re now far more driven by mobile devices and digital functionality than actual checks, which even older consumers now use only infrequently.

“Younger consumers are less wedded to the term of ‘checking account’ and think of it more as a ‘digital access account,’” says Mark Hamrick, Senior Economic Analyst at Bankrate.com. “Within five to ten years, I think we’ll be calling it something else.”

“Checking accounts as the foundation for writing checks has never been less relevant,” observes Jim Marous, CEO of the Digital Banking Report and Co-Publisher of The Financial Brand. “Yet, the need for a service that provides storage of funds and a portal for payments, with a savings/investment component, is still needed,” says Marous. “What we call it really doesn’t matter.”

What does matter is that banks and credit unions connect these accounts with ancillary financial and non-financial services, Marous emphasizes. He notes consumers have driven the cost of most checking accounts down to zero because they don’t see a differentiated value between financial institution offerings. “The key now is for financial institutions to build value in these accounts,” he says.

Checking’s New Role as a Digital Hub

Consumers have historically used their checking accounts as the primary means to perform the majority of their financial activities, typically keeping just enough of a balance to cover expenses for a month or two.

Yet the rise of new payment options and the greater ability to quickly move money around is leading the traditional check to the brink of obsolescence. The use of checks sharply declined from 42.6 billion check payments in 2000 to only 14.5 billion in 2018, with the average consumer writing just 3.3 checks per month, according to the Federal Reserve. Those numbers have likely fallen even further since the start of the pandemic.

Still, most consumers continue to use checking accounts, only now in different ways and for other reasons. The growth of digital payment and banking options has led to a “hub and spoke” financial system with checking accounts serving as the hub, Bill McCracken, President of Phoenix Synergistics, tells The Financial Brand. The checking account is now less of a holding place and more of a transit point and intermediary to integrate with other accounts and fintechs, he says.

For example, a consumer may now get paid via ACH, then make payments with Zelle and Venmo and have a series of auto withdrawals established for bill payments and automatic savings or investment apps. “You have funds hitting the account, but in many cases immediately going out on these spokes towards a variety of different purposes,” McCracken explains. “The checking account is still very functional and at the heart of the consumers’ life, but it has a different definition.”

“It’s more of a vehicle for moving money than for writing checks,” agrees Paula O’Reilly, Senior Managing Director, Accenture. She adds that “even as we have moved to a more mobile and digital environment, people still move money from their checking account, even though that name is now a bit of a misnomer.”