On July 21st banks can begin paying interest on commercial checking accounts. This is a result of a provision in Dodd-Frank that repealed Regulation Q.

Commercial checking has not undergone a change of this magnitude in decades. Account models will now require review and updating in order to meet the expectations of customers.

Some bank may start out by offering products with low interest rates akin to their consumer NOW accounts so that they can immediately advertise that they offer interest-bearing business accounts. Those that are more aggressively focused on winning new accounts may elect to offer higher interest rates.

Others may also take quite a different tack by deciding that in lieu of paying interest, they will analyze their product to determine what changes they can implement to increase the product's value to commercial customers without having to incur the added interest expense.

The most successful banks will find a way to manage both expense and return by developing hybrid accounts structured to award earnings credits up to the amount of service charges and then pay interest on excess balances. Such products offer a combination of interest, fees, and product features that meet the transactional, cash management and credit needs of the target market.

For large banks, the low interest and hybrid options appear to be the best choices due to the high interest expense they would otherwise incur by offering a high interest product. In addition, their competition will be mainly from other big banks so the need for higher interest products is probably minimal. For smaller banks that do not really compete for commercial accounts, the same options are probably the best.

It's the tiers of banks that fall between the mega and community banks - institutions with between $1 billion and $20 billion in assets - that have the biggest opportunity.

These mid-size banks can afford to take on some added interest expense if it means more commercial accounts and relationships. They usually have the business and technological sophistication to offer some of the more complex product and pricing options, too. And, while these banks may not be able to compete for the largest corporate entities, the middle market business is ripe for the picking for the banks that are willing and able to start lending to these businesses in exchange for a comprhensive banking relationship.

Another option is for these banks to be creative with account analysis and experiment with different features and functions that they might not have taken advantage of in the past because of revenue impacts.

Finally, do not think of the repeal of Reg Q as an isolated event. When a bank is considering what changes to make, it should also keep in mind the potential revenue losses resulting from the Durbin Amendment, the changes to FDIC coverage and the resulting increases in FDIC assessments and the FDIC Overdraft Program Supervisory Guidance, which may result in lower overdraft income even for commercial accounts. 

Whatever route an institution chooses to take, it will be necessary to conduct a complete review of the existing business demand deposit account product set. Once complete, the bank must have an open mind about reconfiguring its product set by taking into consideration all aspects of commercial relationships.

The result will be inspired products that will enable institutions to compete for valuable commercial deposits and establish stronger commercial banking relationships.

Brian Boardman is a consulting director at Fiserv's revenue enhancement solutions division.