After years of hesitation, commercial banks are warming up to accounts that bundle brokerage with traditional banking services.
Chase Manhattan Corp. and KeyCorp each are planning such accounts for the fall. And First Union Corp., which has been shaking up the market with its bundled Cap Account, is said to be preparing a similar product for people with less to invest.
The accounts, pioneered by Merrill Lynch & Co. 20 years ago, typically offer checking, brokerage, a daily "sweep" into a money market fund, discounted transaction fees, and a consolidated monthly statement.
Though Citicorp long has offered this type of cash management account, most banks have refrained because of steep technology costs and concerns about losing profitable deposits to the daily sweep.
The costs of the necessary technology are coming down, however, and the fears of losing deposits are giving way to fears of losing customers.
Simply put, many brokerage firms already offer attractive cash management accounts.
"Banks are realizing their competition is more than the bank across the street," said Karen Upton Hill, vice president at Cleveland-based KeyCorp. Banks "want to be full financial service providers," she said.
The heightened competition is increasingly evident in print and television advertising for the accounts. Among the most visible: the Lion Account of Mellon Bank Corp.'s Dreyfus Corp., Prudential Securities' Command Account, and First Union's Cap Account.
The First Union product has been a cornerstone of the company's effort to position itself as "the first union" of banking and Wall Street. Its ads seek to capitalize on the trust people have in banks, while also associating First Union with the know-how of a brokerage firm.
Cap Accounts-short for capital management-have been gaining ground rapidly. Assets in the accounts rose by 46% in the 12 months through June, to $22.7 billion. In all, there were 271,000 accounts at midyear.
With a current minimum of $15,000-similar to those of competing products-Cap generally attracts an upscale clientele. But industry consultants say the bank is now looking for customers further down the market. They say First Union is considering a companion product with a significantly lower minimum. A First Union spokesman would not comment.
KeyCorp, meanwhile, is planning to extend to a broad array of consumers and small businesses a bundled account that so far has been available only to private banking customers.
This offering, the Key Money Management Account, was introduced three years ago and typifies these accounts. In addition to checking and brokerage, it includes such conveniences as a credit card, automatic bill paying, and an investment newsletter.
Chase, meanwhile, is testing something called the Investment Management Account and should be ready for a broad launch this fall, Jack Stack, executive vice president, said in a recent interview. Chase is hoping the accounts will help move customers with traditional bank accounts into investments and insurance products, Mr. Stack said.
Despite the growing interest in bundled accounts, banks still face considerable obstacles to entering the market successfully. For example, many banks are restrained by computer systems that were not built to integrate products from different parts of a bank.
"To a large extent, certain aspects of bank technology are still in different silos and are serviced in different areas," said Lawrence Forman, assistant manager of Ernst & Young's cash management consulting group.
At the same time, experts say, banks' marketing plans must take into account the possibility of losing valuable deposits through the daily sweep.
"Don't let everyone have one," advises Donald McNees, principle at Towers Perrin, New York. Banks, he said, should target customers who will invest-and pay enough in fees to offset the loss of the cash balances.
Approached properly, however, bundled accounts can clearly help banks hang on to their customers.
"If they don't do this, they risk losing their customers to nonbank competitors," said Kenneth Hoffman, president of Optima Group, Fairfield, Conn.
And the accounts may well help banks attract new, more upscale customers, observers say.
"Rather than offering a more traditional high-rate CD or free checking offer, they are targeting households that have large wallets," said Les Dinkin of NBW Consulting, Westport, Conn. "Only customers who have a decent size wallet would find this attractive."
Ultimately, Mr. Dinkin and others say, the products could help banks wrest business from brokerage firms.
"Many people prefer to deal with a bank, since they know a banker is not going to be on the phone with the same intensity of a broker," Mr. Dinkin said.
