New Checking Plans Emerge in Response to Reg E

Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.
With a foundation account that features online banking and bill payment, customers can select from a list of additional features for $2 a month. These range from double reward points or cash back on transactions to a free OD waiver, free foreign ATM transactions or interest on the acccount. Customers can even change the features they prefer as their checking behavior changes. According to representatives from the bank, this account represents approximately 80% of the new accounts opened. A few months ago, BBVA Compass expanded their product line to include a small business version of the Build to Order Checking.

Another interesting alternative offered by some banks is an account with a line of credit attached to cover any overdrafts on the account. Not necessarily new to the banking world, some of these accounts with a line of credit are regulated by Reg Z as a credit product as opposed to Reg E, which covers electronic payments.

Finally, there are some banks that are developing a much stronger online checking product with debit transactions and online bill payment requirements while some banks are linking checking accounts with savings accounts to enhance relationship depth and profitability.

It is clear that we are seeing a new wave of product innovation in response to market conditions and the upcoming new transaction regulations. I will continue to share new ideas as they are introduced.

Reg E Provides Opportunity for Enhanced Relationships

While many banks initially viewed the primary objective of Reg E communication as the recapture of potentially lost fee income, many banks are now positioning their Reg E communication around expanded overdraft options including linked accounts, checking reserve lines of credit and even electronic alerts. While the 12-18% of a bank's accounts that have had overdrafts in the past 12-24 months may still receive messaging primarily focused around opting-in, segmentation strategies will allow banks to reinforce the benefits of alternative overdraft protection to the roughly 80% of the households that do not generate revenues from fees or from higher balance spreads.

The benefit of communicating to a broader audience with alternative options is that the linking of accounts or the opening of a reserve line of credit can extend the life of a checking customer relationship by 2-3 years, thereby eliminating the replacement cost of the customer which can be between $200-$250 based on industry research. The value of this extended relationship far outweighs the potential for fee income for the mass market customer.

In addition, with media attention on Reg E, there is the opportunity to leverage this coverage and enhance the customer experience by educating the mass majority about overdraft coverage options available.