Free checking has helped many banks boost deposits and win new relationships with consumers, but a new report suggests the product could lure small businesses as well.
Greenwich Associates in Connecticut found a strong desire for free small-business checking, which most banks do not offer.
A survey found 45% of businesses with annual revenue of $1 million to $5 million would be likely to switch banks to get free checking. Forty-three percent of those with revenue of $5 million to $10 million said they would probably switch.
"A small-business relationship is a complex relationship. This is just one part of the equation, but the finding that 45% would be willing to switch banks is significant," said Robert Neuhaus, a consultant at Greenwich. "Banks need to take note that this is happening."
Greenwich defines free checking as an account with no minimum balance, though most banks limit the number of monthly transactions allowed.
Greenwich interviewed financial decision makers at 1,225 companies in late October and early November. Most small-business customers do not even have an opportunity for free checking in their markets. Greenwich's examination of the products of 40 "leading" banks found that only 25% offered free accounts without minimum balance requirements.
More than 60% of businesses said they were not being offered free checking, and most said they were not aware of any financial institution offering it in their area.
Free small-business checking is most prevalent in areas where there is intense competition, including the Midwest and New York metro area. In Ohio, for example, larger banks offering the product include Charter One Financial Corp. and National City Corp., both in Cleveland.
Commerce Bancorp of Cherry Hill. N.J., has offered free checking in New York since it first opened branches there in 2001. Outside the Big Apple, where competition is less fierce, Commerce limits the offer to the first year of an account. Companies must then keep $1,000 in the account to qualify, according to spokesman David Flaherty.
Elsewhere, Commerce has offered free business checking for about a decade.
Waiving fees for customers that keep minimum balances remains the norm. It is the practice at such superregionals as Wachovia Corp. and Bank of America Corp.
Because "free" accounts still typically come with strings attached, many small-business owners are wary, Mr. Neuhaus said.
Greenwich found that 59% of those surveyed at businesses with revenue of $1 million to $5 million question whether free business checking is really free. At businesses between $5 million and $10 million, 45% were skeptical.
Even accounts that Greenwich defines as "free" come with limits on the number of monthly transactions. According to bank Web sites, they range from 150 at National City to 300 at Commerce to as many as 500 at First Charter Bank of Charlotte.
