In late 2018, T-Mobile launched a checking account for their customers. (Yes, T-Mobile the cell phone company.) The “T-Mobile Money” account offers 4% APY on balances up to $3,000 and with no account or maintenance fees, no minimum balance, and no ATM fees.
They weren’t the only ones to create an account like this. In December, the investment app Robinhood created checking and savings accounts that earned 3% APY with no minimum balance and free ATM withdrawals. However, due to regulatory issues, the company shut down the accounts before they even launched.
And this trend isn’t slowing down anytime soon. Walmart also offers their own checking account with no overdraft fees, and there have been rumors about Amazon developing a “product similar to checking accounts” for their shoppers.
The “newest” tech trend
So why are all of these checking accounts cropping up? It seems like now these larger tech companies are realizing what bankers have known for years — the impact of checking accounts on non-interest income. For banks and credit unions, non-interest income can be add-ons like insurance or identity theft protection services. For T-Mobile, the checking account rate attracts consumers, and then the “add-ons” are the cell phone, plan, and phone insurance to generate their version of non-interest income.
With the T-mobile account, consumers are required to deposit $200 a month to get a great rate. This might encourage consumers to switch their direct deposits to this account, and eventually just start using it as their primary account since their paycheck is already there. The accounts are a loss leader for these organizations because the businesses aren’t making a huge profit from the accounts themselves. However, the accounts get consumers through the door, and then T-Mobile or Amazon has a direct line to the consumer to sell them other products and services they offer to increase non-interest income.
What this means for community financial institutions
This “new” trend means it’s time to rethink how you see the profitability of your checking accounts. With accounts like Kasasa Cash Back, account holders get a high cash reward for performing behaviors that make them more profitable for your institution, like swiping their debit card a certain number of times per month, enrolling in direct deposit, and taking e-statements.
These qualifications encourage behaviors that make consumers stickier, more profitable, and more likely to choose you as their primary financial institution. And becoming their primary community bank or credit union lets you add on your other products too. According to a recent survey, “consumers are significantly more likely to shop for a loan with an institution that they currently consider their primary financial institution.” By reevaluating your checking account strategy in 2019, you can attract consumers who are younger and more engaged with your institution.
If you want more information about how your checking accounts can work harder for your community bank or credit union, contact us here.