Checking or "Digital Hub" Accounts Will Still be the Primary Account for Most

Whatever they may be called in the future, checking accounts remain a primary account for consumers across all demographics. Approximately 80% of adults say they have a checking account with a bank or credit union, according to a Bankrate survey.

Despite the growth in new apps and platforms, checking accounts remain the primary repository for consumers across all generations, says Mark Hamrick. Even consumers that rely heavily on platforms like PayPal and Venmo often have it tied to a checking account or debit card.

“We’ve seen a tremendous amount of innovation in recent years, but the fact that these accounts are still held among majorities of age groups is quite noteworthy,” says Hamrick. “It remains the primary account.”

Another notable finding is that consumers said they have used the same checking account on average for 17 years. As to why, 17% said it was the “account I’ve always had,” and 10% said it was “too much hassle to switch.” Not exactly a ringing endorsement. In addition, a quarter of consumers said they are loyal and stick with the same account because of low or no monthly fees.

 low or no monthly fees.

If that account longevity trend were to continue, it would mean that even as checking accounts evolve, they’re likely to remain a primary tool for attracting and retaining long-term customers. Time will tell whether the youngest user group will feel the same when they are 50+ as people in that age bracket currently do.

Another plus for checking accounts is that loyalty and cross-selling potential are strongly correlated to where the accountholder’s primary checking account is located, according to a Raddon Relationship Survey. Checking account holders are 70% more likely to bring the institution their future loans and three times more likely to bring all future deposits. These account holders are also 30% more likely to keep accounts at that institution for life.

A New Focus on Fees and Value

Checking accounts remain an important revenue source for many financial institutions, according to data collected by Raddon’s Performance Analytics program. At the end of 2019, checking account and interchange fees made up 86% of the overall net income for the average financial institution. Yet this is quickly changing due to downward pressure on overdraft and NSF fees and on monthly charges. Government regulations and industry moves — led initially by neobanks, but now by large banks — are making checking fees less viable.

Meanwhile, the idea of charging for checking is quickly going out the window. Nearly half of all non-interest checking accounts are now free, the highest level since 2010, according to Bankrate’s annual checking survey. In addition, smaller balances in the accounts means less opportunity to generate revenue on the spread, McCracken observes.

Jim Marous believes it’s time for banks and credit unions to look beyond expecting the checking customer to support checking services. “While there is the potential of adding value for a fee, it is also possible to generate revenues from third parties who would like access to the customer base of financial institutions,” he believes.

As a result, many financial institutions are rethinking their checking account strategy in a digital banking world. In this new environment, financial institutions now have to offer alternative products that can support some monthly fees or generate additional revenues.

Two examples Marous points to are Caixa Bank and Emirates NBD. Both have created services for younger consumers that provide a transactional hub, but add value with music, technology, gaming, social interaction and other services from outside providers.

Even in a hub and spoke system, what is most important is where incoming direct deposits go, says Accenture’s Paula O’Reilly. Forward-thinking banks and credit unions can leverage their trust and infrastructure to capture more opportunity in the hub.

She points to new innovations and partnerships with fintechs as a promising means for banks to offer more value in the checking account space. Many financial institutions are also focusing on faster account opening processes and a “mobile-first” strategy to improve the checking account experience.

“Even if we renamed these accounts, where your direct deposits go is still going to be the primary transactional account,” O’Reilly believes.