Highlights from the Fee vs. Free Checking Debate

September 29, 2011 at 12:32 PM
Last week, we debated the merits of free checking vs. fee-based checking at the ABA Marketing Conference. Unfortunately, that was not the only trip away from our offices that we had to take over the past several days, so these highlights are being posted a little bit later than we’d originally planned. 
 
For those of you who weren’t in the Charm City for the main event, Mary Beth Sullivan of CPG defended fee-based checking against her worthy opponent, Mark Zmarzly of Acton Marketing (see his own recap here). The debate was quite heated but we have heard that Marquess of Queensberry rules were observed at all times.
 
While we are not going to pass judgment as to who might have won or lost, Mary Beth did successfully make three key points:
 
  1. Free Checking is not a profitable product, and it rarely leads to profitable relationships (read: it doesn’t work as a lead product).
  2. It’s not a question of whether to move to fee-based checking; it’s a question of when. It’s perfectly acceptable to let the big banks move first in your markets, but don’t wait so long to make the switch that you end up with a bunch of small, unprofitable accounts that essentially have nowhere else to go.
  3. If you can’t convince yourself or your management team to make the move, at least take actions to limit the profit impact of the product – stop giving away free checks and rebating ATM fees, switch these customers to e-statements, and take away costly rewards programs. And consider charging an inactivity fee where appropriate.
The bottom line: fee-based checking can work if done correctly. Customers are (mostly) rational – they are willing to pay fees if they believe that they are receiving something of value in return. They are also willing to alter behaviors and to engage in “sticky” activities if this will decrease or eliminate the standard fee on their account.
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