By Lisa Hochgraf
My cousin is an emergency room doctor in Chicago. She told me once about the different types of patients that come in. On one hand she sees patients she can diagnose easily and knows just what to do for them. On the other hand she sees those, sadly, she can't really help at all. However, the ones in the middle are the ones that make her job as a doctor really interesting, she said. These are the ones with no easy diagnosis and to whom her choices about treatment can make a huge difference.
So too with checking accounts: Success is going to come from managing the middle.
Checking account data from the 2008 Cornerstone Report and 2010 Bank Report suggest that checking profitability is innate to two groups on the edges of the customer spectrum: 1) those with low balances who pay a lot of non-sufficient funds fees, and 2) those with high balances and low fees, especially if those members who have other accounts with the credit union. In the middle are people who have middle-sized balances and may never pay a fee. CUs profit little from these accountholders.
"The fee payers and those with big balances balance out the ones in the middle," Terence Roche told the 35 participants in the CUES School of Product and Channel Management, this week in Schaumburg, Ill. He cited data suggesting that checking accounts cost financial institutions around $215/account/year in overhead, and that a balance of about $3,000 is what's needed to make a checking account break even.
"How do you manage the trough without ticking off the people on the edges who are producing profit?" asked Steve Williams, also presenting at the school. Both Roche and Williams are principals with CUES Supplier member and CUES strategic provider Cornerstone Advisors Inc., Scottsdale, Ariz.
"You also gotta have what you call your sticks and carrots strategy" to encourage members to use checking in ways that are helpful to the credit union's revenue picture, Roche said. "We're bringing in the concept of 'mutually beneficial': You have to bring us money with what you're doing."
Roche identified sticks as such account features as requirements for monthly balance and e-statement usage. He included rewards, personal financial management tools and interest among the carrots a CU could offer.
"We might use sticks on single-relationship members; carrots, on others," he added.
Lisa Hochgraf is a CUES editor.
Terence Roche will also speak about best practices in product and channel management at CUES' CEO/Executive Team Network, Nov. 6-9 in Las Vegas.
