Why free checking still pays off for credit unions

One of the biggest competitive differentiators credit unions can leverage against big banks and fintech “challenger” banks is not a new product type or techy: it’s free checking! In 2017, 74.9% of credit unions offered free checking. Today, only 20% of credit unions (and 19.4% of big banks) offer this product that is built around no monthly fees and no minimum balance requirements. With checking being the most penetrated credit union product (an average of 58.4% of credit union members held a checking account as of June 2019), now may be the time for credit unions to reconsider bringing the free checking strategy back to the market.

Since the Durbin Amendment passed into law in 2010 (reducing the fees charged to retailers for debit card processing), financial institutions have been looking for ways to increase or maintain non-interest income. Big banks have moved away from free checking and implemented higher maintenance fees and minimum balance requirements for their baseline products. The largest of these banks, holding more than $10 billion in assets, were more negatively impacted by this legislation. However, they continue to have a competitive edge over credit unions due to broader physical presence, more attractive incentives to attract new accounts (in some cases upwards of $600) and deeper digital solutions.

While credit unions holding under $10 billion in assets did not see as big of an impact to debit card interchange revenue, they continue to seek ways to increase non-interest income. Some recent trends include removing free checking and adding requirements with a low monthly fee, as well as implementing new products with “add-ons” such as identity theft packages tied to a monthly fee, which in some instances cannot be waived. Advisors Plus suggests credit unions give their members the flexibility to select these “add-ons” as an option or leverage the relationship to cover that expense, thereby rewarding members for their loyalty.

 

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