Banks fighting hard for consumer checking accounts
Published: Sunday, January 15, 2006 at 6:01 a.m.
Last Modified: Saturday, January 14, 2006 at 11:17 p.m.
WASHINGTON - Stuart Machir is 26 and in the crosshairs of every major bank in Washington.
They want his money, even though there isn't much of it. Machir estimates his average daily checking account balance is less than $1,500 - an amount that even five years ago would have made banks load fees on a customer considered to be a money-loser.
"I'm not exactly a private-wealth client,'' said Machir, who works for a downtown professional services firm.
But new technology and marketing techniques have made even marginal account-holders profitable and put people like Machir at the center of a hypercompetitive fight to sign up new customers - particularly young ones - no matter how skimpy their balances may be.
Bank executives used to focus on savings accounts and commercial lending, but now see consumer checking as a foundation of their business, cheaper than ever to manage and something of a loss leader for loans, investment accounts and the broad supermarket of services that banks can offer since deregulation in the 1990s.
As a result, banks have focused advertising dollars, redesigned branches, extended hours, improved service and even brought back old-fashioned product giveaways in hopes of persuading decidedly unwealthy customers to do something they almost never do: switch banks.
Just how effective those enticements will be is uncertain. Bank customers are among the most steadfast, even if they hate their banks, numerous surveys show. While about a quarter of all bank customers typically say they are dissatisfied, the average bank will lose only about 15 percent each year, the vast majority because customers move or die. A 2001 industry survey estimated only 2 percent of all bank customers nationally switch their accounts for better deals on fees or rates.
Even though banks typically lose money on checking accounts with an average annual balance of $5,000 or less, the potential for growth makes them willing to spend as much as several hundred dollars to lure each new customer. That customer is likely to stay an average of seven years, and that means the bank can earn thousands of dollars from loans, investment accounts and other services aimed at getting a larger "share of wallet'' from each accountholder.
"It's all about the checking account,'' Commerce Bank chief executive Vernon W. Hill II said in an interview last year. "Everything follows from there.''
In November, Wachovia, which has the dominant market share in the Washington region, introduced online software to switch a customer's entire banking relationship - including sending letters to employers to move direct deposits - in 20 minutes or less. Several banks say they will begin promoting such "switch kits.'' First Horizon Bank, a Tennessee company that entered Washington this year, will even have bank-branch employees type in the information.
Commerce Bank, a New Jersey institution, is opening 1,000 new checking accounts a month at its three new area branches. Commerce is a big believer in an old tactic: the new-customer gift. The bank blankets neighborhoods around its branches with direct mail, offering toasters, irons, waffle-makers and golf umbrellas. Its most popular gift is the George Foreman Grill: It gave away 800 in its first four months in Washington.
Commerce has gone old school in another way. While some banks refuse to accept coins, Commerce has put free coin counting machines in its lobbies, making them available even for non-customers.
Citibank offers a new rewards program, in which customers rack up points towards items like an iPod or a television set.
Other competitors have fought back with advertising. In the three months ended June 30 - the period when Commerce began opening branches here - Chevy Chase Bank spent $1.9 million on local print and broadcast advertising. That was a 1,174 percent increase from the previous year's second quarter, according to tracking firm Video Monitoring Services of America LP.
Free, no-minimum-balance checking, introduced three years ago, is now the norm, and banking experts who follow this market closely say a variety of so-called nuisance fees - foreign ATM charges, overdraft fees and the like - will disappear next.
Yet all the branches, advertising and giveaways may be of little use unless customers are willing to shop around.
"I've stayed because it's easy to stay,'' said Albert Scariato, a District resident. He said he has wanted to switch banks for two years.
Alenka Grealish, manager of the banking group at research firm Celent LLC, said banks have to be "hitting on all cylinders'' to move the switching needle, especially in Washington, which has a bank branch for every 2,000 people, the highest rate in the country.
"Customers have to be really angry to switch,'' Grealish said. "It has to be a series of customer service failures, or getting hit with a lot of annoying fees.''
While less than a quarter of bank customers use online banking, its use is increasing rapidly. As it spreads - along with free bill payment systems and other financial relationships monitored online - customers are even more loath to start again with another bank.
"If a customer has a fairly well-entrenched set of relationships with online banking, it gets really hard,'' said Kathleen Khirallah, retail banking research director at Tower Group Inc.
"It's a nuisance to unwind these relationships."
While the $80 Machir spends each year on fees on his Citibank account and a few annoying service glitches make it tempting, "the time and effort it would cost to switch are not things I want to spend,'' he said. "For me to switch, someone would have to offer something far superior.''
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