When American Bank FSB in Bethesda, Md., opened the first of two in-store branches in outlets of the Super Fresh grocery chain in 2003, bank officials started brainstorming ideas to attract grocery store employees to the bank.
They came up with “guaranteed checking,” which lets customers who deposit their paychecks through direct deposit have access to up to 90% of the funds the day before they hit the account.
James Plack, American’s president and chief executive, said Super Fresh employees have taken to the idea of getting their paychecks ahead of time — without paying an overdraft fee.
Having had modest success landing deposits from grocery workers, the $298 million-asset bank now plans to market guaranteed checking to other businesses, including hospitals.
“This has given us a lot of good will with the food store,” Mr. Plack said. “As we go into new markets, we can go to other large employers and use this as a way not only to get their commercial deposits, but also their employee deposits.”
Just a handful of banks have offered similar services, but many credit unions that serve employers have been offering some form of guaranteed access to direct deposit funds — even in the unlikely event there is a problem with processing — as a way to increase their field of membership, says Thomas Parliment, the president of Parliment Consulting Services Inc. in Key West, Fla.
Bank products have become commodities that other financial services providers, such as brokerage houses, are also offering, Mr. Parliment said. “In order to compete with these retailers, banks have to think the same way — they have to differentiate their products, and do more things like guaranteed checking.”
Even though all this service does is guarantee automated clearing house transactions that carry implicit guarantees themselves, banks should “play it up” to grab customers’ attention, Mr. Parliment added.
“The guarantee isn’t really worth much, but that’s not what retailing is all about — it’s more about the perceived value of things,” he said.
Mr. Plack said that older customers who receive their monthly Social Security checks through direct deposit have said they like the service. American Bank has received fewer calls from these customers asking whether the direct deposit was actually processed.
Not all banks are sold on the idea. John J. Dickson, the president and CEO of the $2.6 billion-asset Frontier Financial Corp. in Everett, Wash., said that when management first heard of guaranteed checking at a banking conference several years ago, the marketing concept had sounded “too gimmicky” for Frontier Bank.
“This seems like it could be encouraging people to use money before it’s actually deposited in their accounts, and that’s just not what we’re about,” Mr. Dickson said. Then again, he concedes that Frontier Bank, predominantly a business bank, has not been very progressive in retail banking; it only recently introduced free checking.
Michael Cyr, a vice president of sales at the retail banking consultant firm IBT Enterprises LLC in Atlanta, said giving access to direct deposit funds the day before they are processed would not change customer behavior.
Those who prefer to wait until the funds are actually posted in the account to withdraw money would continue to do so, Mr. Cyr said. And those who tend to hedge their bets and write checks the day before every payday, he said, would appreciate being given that grace period — particularly on a deposit the bank knows is a sure thing.
Mr. Plack said, “In community banking, any time you have an additional product, it doesn’t hurt.”
