Recently a checking account strategist at a large bank told me: "We were aggressively seeking new retail checking customers, aiming to sell additional services against this core relationship. Now we're not pushing to get new checking customers anymore."

Maybe this comment reflects the impact of revenue compression and low-funds value, rather than a trend away from marketing checking accounts as a relationship hub. But let's not take that for granted.

Will the checking account continue to serve as the household financial hub, identifying "my bank" for most consumers — and giving this main bank a unique cross-sell advantage?

Most consumers are a great deal more interested in what they own than in what they owe. Likewise their attention is attracted by motion rather than by larger assets that stand still. As long as a "checking account" serves as an initial destination and hence a disbursement point for primary income, it will remain central to consumer financial consciousness.

Several lines of development seem to point in a contrary direction, however.

Probably the most obvious of these is the declining importance of paper checks. Most bills are now paid electronically. Checks are inconvenient for P-to-P payments, and are being replaced by newer, electronic alternatives.

Furthermore, checking account checks have long since lost their uniqueness. Money funds and credit cards offer payment by "check." These alternatives are little used because they rarely draw directly on the continuing source of primary income.

For me, the defining characteristic of the hub "checking account" is not paper checks, but rather the regular deposit (electronic or otherwise) of income. Recognizing this, a variety of other vendors, such as issuers of prepaid cards, offer small bounties such as $25 for the establishment of direct payroll deposit — primarily to down-market customers.

Evidently the stakes in capturing consumer income at the source are not yet perceived as high. In fact, the small deposit bounties have not attracted large numbers of takers — despite the fact that penetration of direct deposit and consumer consciousness and acceptance of it are high.

There is even quite widespread awareness that the deposit can be split, or part of it can be sent onward from its initial destination. The whole paycheck continues to go to the bank checking account.

What could change this long-standing pattern and hence shake the preeminence of the checking account?

One significant possibility: Many tens of millions of consumers, especially younger ones with substantial income, have current liabilities greatly exceeding their current assets.

These people are inveterate revolvers on at least one credit card. Right now each borrows thousands of dollars at 15% in order to "invest" it in checking balances that pay 0%. They're not doing this to meet minimum balance requirements and save fees: there are still plenty of checking accounts available with no minimum balance, no monthly fee and free bill paying. They do this because they do not see a more economical alternative.

It would be rational for many of these revolvers to eliminate their "checking account" in favor of a hub account that normally carried a borrowed balance. This account would receive primary income and disburse payments. No such account is being marketed yet.

Why should it be? Almost every institution that now funds unsecured consumer debt also offers checking accounts.

As an industry, if customers will borrow from us at 15% in order to invest with us at 0%, then why disintermediate that spread? Why make this offer to your own customers?

In 1950, marketing to get checking accounts with "free money" was king. Same now?

Yet banking is not an oligopoly. "Disruptive innovation" will continue. It won't happen via "overdraft checking," which U.S. consumers, unlike Europeans, have consistently rejected for decades.

Rather, the change in the core account for these highly desirable customers is likely to begin when a major card issuer starts to market aggressively, with high incentives, to obtain from current prime customers direct deposits (initially from checking accounts rather than pay); integrates free payments; and forgoes a transaction fee — in order to reduce chargeoffs and control the consumer's overall use of credit.

My firm has measured the demand for this. It is immense.

Case in point: Merrill Lynch's Cash Management Account was one of the most successful financial innovations of the 20th century.

I proposed it to capture assets. Among the innumerable objections were these: "We are charging people 1% to put money in. And we have a minimum check size of $500 to avoid having to process too many checks."

They dropped the 1% and the minimum check size. They had to give a little in order to get a lot.

Rather than seek nearly valueless "free money" in checking accounts, maybe we should now aim to attract net borrowed balances in a hub account nourished by income.

Andrew Kahr is a principal in Credit Builders LLC, a financial product testing and development company. He was the founding chief executive of Providian Corp. He can be reached at

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