Flocking To Free? Not So Fast, Says 1 Person

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LOMBARD, Ill.-Don't be so sure consumers will flock to the credit union if it maintains free checking even as other providers add new fees, one person is cautioning.

Pat Bator, senior research analyst at Raddon Financial Group, is warning that the "big checking churn" that's been predicted won't happen. "There will certainly be a movement, but not as big as what has been stated by some industry observers," said Bator. "I am not advocating to credit unions to keep free checking or not, I am saying it is not going to be as easy as some industry observers have stated to win over checking accounts. Consumers will not be rushing through your doors."

Analysis in Raddon's Spring 2011 National Consumer Research, indicate 30% of consumers have said they will switch if their financial institution cuts out free checking. But Bator believes there is a difference between what consumers say they will do and what actions they will take. He thinks many consumers will opt to keep their current checking account if they are given a way to waive the new fee and noted Raddon's survey showed strong consumer sentiment that providing an option to avoid new checking fees will keep them from switching.

"We asked a follow-up question that gave us answers that indicated roughly 70% of consumers will stay right where they are if they have an option to avoid a fee, such as direct deposit, active use of debit, online banking use, or e-statements," Bator said.

By the same token, if CUs are planning to add a fee, Bator believes they will prevent a runoff by providing members with options to waive the monthly maintenance fee, with one easy option being direct deposit, since eight in 10 consumers have a direct deposit relationship and roughly six in 10 are getting their payroll direct deposited.

Banks Using Relationship Pricing

What will likely also stem the checking churn is that many of the big banks that are cutting out free checking have moved to relationship pricing and are providing options for consumers to keep the account free, Bator shared (see chart). "Many of the larger banks across the nation, such as bank of America, are waiving the fee if members keep a certain minimum balance or bring over direct deposit. So these institutions are really not shutting the door on free checking."

The final reason Bator believes many consumers will not move their checking account relationship is simple inertia. "You have a lot of considerations and the physical act of actually doing it. When you decide to open a checking account there are many criteria that influence the decision. For example: Is the institution close to me? Does it provide mobile banking? Does it have convenient hours of operation?"

Following the Fed's new rules released last Wednesday, credit unions may begin pulling the trigger on checking fees. However, Bator cautioned that CUs should carefully assess their need to recoup the potential loss of interchange revenue, where they stand in the market, and look at what others are doing before making a quick move. "We advocate not jumping right into checking fees now. Credit unions should assess their product menu within their cost structures and their pricing strategies-and many already have. It is very important that credit unions make fact-based decisions on their course of action. Your competitive situation in the marketplace will dictate your strategy going forward."

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