Banks and other financial institutions can minimize their losses on checking accounts by limiting the kinds that they offer, according to a new report from economic research firm Moebs Services.
Financial institutions lose an average 0.83% on their checking account portfolios because the cost of maintaining the accounts outweighs revenue, according to the study of 2,890 banks, thrifts and credit unions conducted between Jan. 2 and Jan. 10. Banks typically take a loss on checking accounts in the hopes of cross-selling other products to customers.
But financial institutions that offer just one checking account lose an average 0.75% on their portfolios 10% lower than the national average. At the other end of the spectrum, financial institutions that offer seven different kinds of checking accounts lose an average 0.95% on their portfolios. The median number of checking accounts offered by financial institutions is three.
"Financial institutions need to determine why they can't meet consumers' needs with one, two, or at most, three accounts," the firm's Chief Executive Michael Moebs said in the report. While lenders may want to offer customers plenty of options, Moebs says that this diversity comes with higher expenses from account reconciliation, information technology, compliance and employee training.
"Banks should sell just a couple kinds of checking accounts so salespeople can concentrate on [asking customers] 'Do you have more business?'" Moebs said in an interview on Thursday with American Banker.