LAKE FOREST, Ill.—Is it time for credit unions to be more concerned about checking competition from some big-name, big-budget brands that also own fintechs?
Despite the record level of deposits in checking accounts, the number of depository checking accounts is actually falling, as fintech firms–including big established brands such as Walmart–pick up what is being let go, a new report shows.
This is likely an early warning that these fintechs, which also include Amazon, may someday dominate the checking market, said Michael Moebs, economist and CEO at Moebs $ervices.
A study by Moebs $ervices, using bank, thrift and credit union data from the FDIC, NCUA and the Federal Reserve, reveals this trend is occurring.
Stealing Away Key Service
“Most depositories don’t realize fintechs such as Walmart—and soon Amazon—are taking away their key service,” said Moebs.
The total number of checking accounts peaked nationally in 2011 at just under 700-million accounts, according to FDIC, NCUA and Fed data. Since then, total checking accounts have declined at depositories.
In 2017 total checking fell to slightly more than 600-million accounts. This is a decline of about 100-million accounts, 12% in the past six years, or about 2.2% a year. Total checking balances have more than doubled in the same period from $945-billion in 2010 to $2.110 trillion in 2017.
“Checking accounts are in a transition period,” noted Moebs. “The number of depository accounts is declining from competition with fintech firms Walmart, Starbucks, and Apple.
Moebs said that the fintechs are taking away “transaction checking” from depositories.
“Why?” asked Moebs, before answering, “Depositories are shedding mostly single-service households with free checking accounts with low balances and high transactions in favor of relationship checking accounts.”
Moebs defines relationship checking as two or more services with one consumer or business relationship.
“The relationship dynamic is to have checking become profitable when associated with at least one other money-making service rendering the relationship lucrative,” said Moebs. “Otherwise depositories are glad to let go of unprofitable, high transaction, low balance, often free, checking to fintech firms.”
Unsure Of Financial Future
What are the consequences?
“The American consumer is very unsure of their financial future. In uncertainty a person will retain and hold money until the future becomes clearer—this is why checking balances are rising,” explained Moebs. “Yet, consumers and businesses while waiting for a more stable future will seek a less costly checking account.”
If the checking user does not maintain a high balance and transacts frequently, banks, thrifts and credit unions will often consider them unprofitable, Moebs said.
“The fintech firms welcome small-balance checking users, because they reduce costs by not paying interchange, or swipe fees—Walmart pays millions in interchange each year,” Moebs said. “So, if a Walmart customer swipes a debit card or prepaid card from Walmart, Walmart does not have to pay swipe fees. Depositories need to stop the outflow of the checking account transaction user who keeps no balance and focus on reducing operational cost and installing lower fees to make checking profitable. Otherwise, the likes of Walmart and Amazon will soon dominate the checking account business.”