Huntington Bancshares Inc. Chief Executive Stephen Steinour is challenging his rivals to double down on free checking or abandon it.
The Columbus, Ohio, company on Monday unveiled "asterisk-free checking," which Steinour said offers at no charge services that most of his big bank rivals are beginning to assess fees for. It is free to open, and has no monthly maintenance fee, minimum balance or rules governing check or debit card use.
"We wanted the other banks to declare" whether they will end free checking or keep it, Steinour said. "Most banks have gone to fee checking account products. A couple have not. We've said we want to be a category of one. This is another way to break out."
The new account is part of a streamlining of Huntington's deposit offerings, he said. The bank will offer two basic checking accounts; currently it has six.
The new account is part of Huntington's so-called "fair play" marketing and business plan it launched last year. Huntington seeks to attract new customers by not raising fees and prices on basic banking services. It previously began offering a "24-hour grace" service that lets customers make a deposit a day late to avoid overdraft charges.
Huntington's gamble is simple: Lose revenue now by not raising fees, to grow it later by bringing more customers in the door that have a good shot at buying multiple products. It is a risk: Huntington's expenses trend higher than aggressive in-market rivals like U.S. Bancorp, which is betting it can take share by offering cheaper loans or services even as it eliminates beloved customer giveaways like free checking.
Huntington — like virtually every bank in the country — is struggling to increase revenue even as profits increase because of fewer delinquent home and business borrowers. Its net income rose 3% from the second to the third quarter, to $126 million. Revenue declined about 6%, to $645 million.
But Huntington said it expects the 24-hour grace program to result in $30 million of lost revenue annually.
The obvious questions: What will its new free checking cost? And what impact has 24-hour grace had on cross-sales and customer growth?
Steinour says he'll release some of those details when he speaks at the UBS Financial Services Conference in New York on Tuesday.
He said free checking will pay off over time. Huntington grew its number of banking relationships per household at a rate of 9% annually in the first quarter.
"We would expect to do better with this checking product," Steinour said.
Some investors and analysts have begun to question whether banks need to keep raising deposits with few opportunities to lend them out.
Steinour's view: A bank cannot have too many core deposits, or stable, cheap funds from customers that have been with the bank for a while.
They are good for the bottom line for a number of reasons, he said. Checking account holders are more likely than non-customers to take out a loan or seek investment advice from Huntington, he said. The more noninterest bearing funds that the company raises, the less it has to rely on costlier wholesale borrowings or deposits that accrue interest, like money market accounts and certificates of deposits. That, in turn, improves the net interest margin.
Huntington's net interest margin rose 5 basis points, to 3.42%, last quarter as deposits that do not accrue interest rose 2% and certificates of deposit declined 3%.
Absorbing costs means elevated expenses. The launch of the new free checking will "be supported by print, online and television advertising" and direct marketing campaign, adding to Huntington's already increasing advertising expenses — which rose 4% and more than 50% from the prior quarter and a year earlier during the first three months of the year.
"We're willing to sacrifice for the short term," Steinour said. "Right now we're pulling our revenue levers very hard," he said later in the interview.
Free checking may not be the company's last, new customer-friendly offering. It is testing 32 other potential new products that may or may not come to market, Steinour said.