Michigan National Corp. is trying to attract small-business customers with a sweep account that allows holders to use excess deposits to pay down credit lines.
The bank introduced it in a pilot last summer and plans to promote it this spring, said Susan Barbour, Michigan National senior vice president and head of business services.
Customers select their checking account minimum balance and determine whether to sweep excess deposits into investments or pay down loans to reduce interest payments, she said.
Most banks let customers sweep deposits only into investment accounts. Michigan National's new account also moves funds from the line of credit to the checking account so the customer can avoid overdraft fees, Ms. Barbour said.
"They can sweep the available funds wherever they need them to go," Ms. Barbour said.
Banks typically earn greater revenue on small-business checking accounts, because no interest is paid on those deposits.
The new sweep accounts, called "cash flow optimizer accounts," are costly for Michigan National to operate, but the bank makes up the difference with volume, Ms. Barbour said.
Michigan National uses a method it calls "pay as you save" to set fees for the account. Each month a bank statement details the amount of interest charges the customers saved by paying down their credit line. The bank charges 10% of that amount as a monthly fee.
Ms. Barbour said the Farmington Hills, Mich., bank, which has $9 billion of assets and is a subsidiary of National Australia Bank Ltd., wants to use the sweep account to attract customers from its larger competitors, First Chicago NBD Corp. and Detroit-based Comerica Inc.
Brad Orr, Comerica Inc. vice president and product manager, said his bank has a similar sweep product that can transfer funds to investment accounts or pay down credit lines. He said that the product was unheard of when Comerica introduced it in February 1997.
"There are very few bells and whistles that you can put on a sweep account that we don't have," he said.
But rather than aggressively promoting the sweep account, Mr. Orr said the bank evaluates all its customers to determine if the account would suit their needs.
Michigan National plans to use direct mail to promote its account to small-business owners and will market the product to accountants who can refer customers to the bank, she said.
Charles Wendel, president of Financial Institutions Consulting in New York, said promoting such sweep accounts is a smart strategy for a smaller bank that wants to gain market share.
Ms. Barbour said she is convinced the new account can help the bank make headway in the small-business market.
"I've got people out there really shaking the trees to make sure they close a deal a week," she said. "They want to win."
