Checking and Online Bill Payment: Now a Free For All?

By Vicki Joyal
Vice President—Research Services
CUNA & Affiliates

Over the past six years, the percentage of banks that offer free checking to their customers—once a significant differentiator for credit unions—has increased dramatically. According to the just-released Credit Union Fees Survey from CUNA’s Center for Research & Advice, 57% of banks now offer free checking. And it’s probable that this percentage is even higher among community banks and thrifts. At 71%, credit unions still have an edge with free checking, but banks are quickly eroding this competitive advantage.

The ABA Banking Journal’s 2004 Community Bank Competitiveness Survey identified that banks are offering free checking for two reasons: to build market share, and to generate a base upon which fee income (NSFs and overdrafts in particular) can be derived. Can you blame the community bankers for studying credit union pricing strategies and learning from our success?

Banks have also changed their fee-charging ways for online bill payment services. According to a special report from the American Banker 2004 Consumer Survey, most big-name banks now offer online bill payment for free, including Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wachovia Corp.

Credit unions are following suit, but perhaps not quickly enough to secure member market share. More credit unions are now offering online bill pay, and fewer are charging fees for it than ever before. According to CUNA’s survey, nearly 60% of credit unions now include a bill-paying service in conjunction with their Internet banking service, up from 50% in 2001. And the number of credit unions that are charging fees for this service has dropped nearly 20 percentage points—from 81% in 2001 to the current 62%.

While the largest credit unions (those with $500 million or more in assets) are the least likely to charge a fee for online bill payment, just half offer the service for free. Given consumer reluctance to pay, and the stickiness that this service offers in terms of securing a member’s primary transaction account, it’s time for all credit unions to reconsider charging for online bill payment.

Strategic considerations

• Constantly reassess and refine your point of differentiation and competitive advantages as the financial services marketplace evolves. Keep in mind that using free checking as a competitive advantage won’t stand the test of time.



• If you don’t already offer free checking, now is definitely the time to do so. Further delay could erode the number of members that consider your credit union as their primary financial institution (PFI).



• Carefully consider (or reconsider) your fee structure for online bill payment. Make sure you are in a position to grab market share as members seek out bill payment services.

CUNA’s 2004-2005 Credit Union Fees Survey contains a detailed analysis of more than 65 fee types and account structures, including bank comparisons where available.

In addition to the percentage of credit unions that offer a certain product along with the overall percentage that charge a fee for that product, the report also includes the average, maximum, and most common amount charged, and the number of free transactions before a fee is charged. All data tables are broken down by asset size and by region for peer comparison purposes. Click here for more information and to purchase your copy.

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