Though most banking companies are sorry to lose any customer, they work a little harder to keep big-dollar accounts; some maintain special call centers for these depositors, for example, and an officer is quick to call if they seem dissatisfied.
FirstMerit Corp. of Akron has such a service, but it is extended to all checking customers, not just high-balance ones.
Earlier this year the $10.2 billion-asset company installed a program that analyzes account activity and flags customers who appear to be mulling a switch. A member of FirstMerit’s “retention team” then contacts the customer to try to smooth out any problems and hold on to the account.
FirstMerit’s efforts to prevent even a comparatively modest relationship from defecting point to a growing awareness throughout the industry that lower-balance checking accounts are valuable, particularly with the prevalence of overdraft protection programs.
In a presentation at the American Bankers Association’s convention in New York last month, David Furnace, the managing director of Sheshunoff Management Services in Austin, estimated that an account with an average balance of $2,636 generates an annual profit of $219. A bank can net close to $1,500 if it retains that account for seven years, which is the average life span of a checking account, he said.
Certainly worth the price of a phone call.
“You don’t have to move the attrition needle very much to have a big effect on your bottom line,” Mr. Furnace said.
Few companies work harder than FirstMerit to keep attrition to a minimum. Its predictive software performs daily scans for accounts with a decline in activity or large withdrawals. Those cases are flagged for the retention team.
William G. Lamb, FirstMerit’s executive vice president for retail banking, said the retention team does far more than work with customers who are on the verge of leaving. Members call new customers to see whether they received their checks and debit cards on time, and they make follow-up calls throughout customers’ first year with the bank to monitor satisfaction.
“Retention is a very high priority,” Mr. Lamb said. The bank knows checking accounts are profitable, he said. “They are a bedrock product. They give us an ability to cross-sell and deepen the relationship.”
Four or five years ago, many would have disagreed with him.
The trend then was to use customer relationship management tools to measure each account’s profitability and try to dump those that fell below a certain threshold. Indeed, banks commonly referred to the so-called 80/20 rule, which held that 20% of customers generated 80% of the profits.
“The attitude was, ‘We’ll segment down, identify the unprofitable customers, and try to price them out,’ ” said Betty Cowell, the manager of Wachovia Corp.’s deposits and access service group.
In the late 1990s that is precisely what First Union, Wachovia’s predecessor company, might have done to a small-balance checking customer who occasionally overdrew his or her account. Earlier this month it overhauled its free-checking offering to include a free bill online bill-pay feature as well as no direct deposit or minimum balance requirements.
“We think of free checking as an acquisition vehicle to gain households,” Ms. Cowell said.
Though the Charlotte company’s free-checking push has drawn plenty of small-dollar accounts, it has also attracted more substantial customers than expected.
“We were surprised at the balances,” said spokeswoman Mary Beth Navarro. “We assumed they would be smaller.”
Customers who keep just a few hundred dollars in their accounts generate revenue by making purchases with their debit cards and by using other banks’ automated teller machines.
When overdraft protection is put into the mix, per-account returns can be substantial.
Banks generally avoid discussing profits related to overdraft fees, largely because consumer groups have criticized the fees as excessive. But bankers maintain that customers want overdraft protection and are willing to pay $25 or $30 to avoid bouncing a check.
The $6.1 billion-asset Provident Bankshares Corp. in Baltimore, which has offered Totally Free Checking since 1993, says its 285,000 checking accounts generate an average of $220 on fee income a year.
Checking “brings 80% of our total fee income to the table,” Provident’s president and chief executive, Gary N. Geisel, said last month at the Mid-Atlantic Super Community Banking Conference in Philadelphia.
Mr. Geisel did not discuss overdraft fees in his presentation, but Mr. Furnace at Sheshunoff estimates that overdrafts generate 70% of a typical bank’s checking fees.
Neither FirstMerit nor Wachovia would disclose their per-account revenue numbers.
Karen L. Maruna, FirstMerit’s customer service manager, said the company is always looking for way to increase fee income, but its ambitions for its checking program go beyond noninterest income.
“We want customers’ savings, investments, home loans, and car loans,” Ms. Maruna said. “We’re after the total relationship.”
