MELODIE JACKSON
‘Positive response’
Ten years ago, it was an innovation. Today, it’s a necessity. Free checking has become as indispensable to banks over the past five years as cell phones have to modern businesspeople. Most bankers say their banks couldn’t be competitive without it, but its prevalence may mean that money spent advertising free checking accounts might not be worth it, according to a recent study from Atlanta-based Synergistics Research.
In Synergistics’ study on free checking, the group found that more than seven in 10 consumers said they had seen advertising for free checking, yet fewer than one-tenth have actually made an inquiry about free checking, according to the study. Fewer than one in 20 actually opened a free checking account as a result of the advertisements they had seen.
But that might be because a lot of people believe they already have free checking. Seven in 10 consumers involved in the study said they already have the free service, according to Synergistics.
“Across the country, depository institutions are aggressively advertising and promoting free checking accounts by using banner ads at branches as well as television and newspaper advertising,” said Bill McCracken, chief executive officer of Synergistics, in a prepared statement. “While awareness of free checking is quite high, the low level of account opening begs the question of whether there is a payoff to widespread mass advertising of free checking. Furthermore, most consumers currently perceive they have free checking. Consumers expect banks to offer free checking as part of the product line, but clearly it is not a competitive differentiator in today’s marketplace.”
Whether free checking itself is enough to get new customers through the door, it is a perk a bank needs to offer to stay competitive.
“Yes, banks have to offer totally free checking to be competitive now,” said Cary Lynch, senior vice president and a regional executive for Sovereign Bank’s Boston branches.
But when free checking first came on the market, it proved successful for the banks that offered it. Eastern Bank launched its free checking account in 2000, said spokesman Joe Bartolotta. The bank opened 28,000 new checking accounts in the first 12 months after it started offering the account, according to Bartolotta.
“Since its launch, it’s been one of our most popular consumer products,” he said.
The bank started the free checking in response to the wave of mergers that came before 2000, when Fleet acquired BankBoston, Bartolotta said.
“We were quite successful,” he said. “We wanted to position ourselves as sort of the mid-sized alternative [to the larger banks].”
The free checking account was a demonstration of the bank’s commitment to providing value, Bartolotta said.
Product Evolution
Sovereign Bank launched its free checking account, called Totally Free Checking, in January 2001, Lynch said. The bank heavily researched the idea and, according to Lynch, was one of the chief innovators of free checking in New England, according to Lynch.
“We thought it made sense Â… to introduce that to the market,” he said.
At the time, Sovereign was fairly new in the market and free checking was not only a way to get new customers through the doors, but served to build brand awareness, Lynch said.
After Sovereign introduced the account, there was a window when it was among only a handful of regional banks to offer free checking, Lynch said. The account was “a tremendous success” during that time, he said.
Citizens Bank, although it has had some form of free checking for years, didn’t launch a dedicated free checking account until 2004, said Citizens Senior Vice President and Director of Public Affairs Melodie Jackson.
The bank has had a product called Circle Checking that provides free checking if a customer has a $5,000 relationship with the bank, for years. The account doesn’t charge a monthly maintenance fee, Jackson said.
“It’s really our signature product,” she said.
But the bank last year launched another free checking account, Green Checking.
“It really was us just reaching into the market,” Jackson said.
The bank launched the new service in response to consumer research, she said. The bank polls about 3,000 of its customers each month, and found that customers said free checking is a priority for them.
“It was a response to our marketplace,” Jackson said.
The account has so far been successful, according to Jackson, and has helped the bank attract new customers. But some customers who had other checking accounts with Citizens switched to the free one.
“[The service has had] a very positive response,” she said.
Through the Green Checking program, customers at Citizens Bank get free checking if they have direct deposit, online bill pay or automatic payments, like a monthly gym fee, according to Jackson.
Those types of requirements – or perks that go along with free checking accounts – are what differentiate banks now that free checking is commonplace, Lynch said.
“Everybody’s offering totally free checking,” he said, but there are many subtle differences in accounts.
People “still like free stuff,” Lynch said, so banks that have the most perks – or fewer requirements – with their free checking accounts could have an advantage.
“I think it’s evolved over time,” he said.
Sovereign’s free checking account includes perks like no minimum balance requirement, unlimited check writing, free online banking and bill pay and free direct deposit.
“It’s a larger package,” he said.
Sovereign also tries to emphasize their focus on customer service when discussing their free account, Lynch said.
Eastern Bank offers a similar set of perks with its free checking account, Bartolotta said. The bank doesn’t charge for debit cards, doesn’t require direct deposit or a minimum deposit and allows the account to be opened with as little as $10, he said.
But the little differences don’t always sway customers, so some banks go beyond free checking with promotions or other, specialized accounts. Eastern Bank promoted its free checking account twice this year, Bartolotta said. One campaign offered customers up to $100 to open a free checking account – $50 if they used direct deposit and $50 if they closed an account at another bank. The bank also offered a free companion airline ticket.
The promotions were partly in response to consolidations in New England’s bank market – like that of Bank of America and Fleet – and were also a way to let people know the specific benefits of Eastern’s free checking account, Bartolotta said. And, given the success of the product, the bank will likely continue to promote it “in one way or another,” he said.
“It’s absolutely worth it,” Bartolotta said of the marketing efforts.
Jackson agreed. Although she didn’t have any information on how much offering free checking might cost the bank, she said it helps fulfill Citizens’ overall goal of establishing long-term relationships with new customers since free checking helps get them in the door.
“It’s advantageous,” she said.
Synergistics’ study featured a national online survey of 1,051 consumers aged 18 or older with household income of at least $25,000. The study examined the consumer perspective on free checking and current usage and pricing issues, as well as provider objectives including cross-selling opportunities through the checking relationship, according to Synergistics.
