A Free Chance at Success

Debit interchange regulation is moving the market away from free checking, which gives credit unions a new way to enhance member relationships.


Late last year, the Federal Reserve announced proposed rules on the amount of debit-card interchange fees that banks can receive.

The cap represents a significant change from current limits, and it is generating widespread change across the financial services industry as institutions scramble to make up for potential lost fee income. The effects of the rule, which must be finalized by late April, are clear for banks; for credit unions, the impact is less apparent. Moreover, some cooperatives are taking a proactive approach and looking for the opportunity presented by the change.

One easy fix is to do away with free checking accounts, but just because something is easy doesn’t mean it is the best solution for members.

Two credit unions are seeing this as an oppportunity and promoting free checking as a distinct credit union advantage.

December is typically a slow month for new memberships at BECU, says Tom Berquist, senior vice president of Member Strategies at the $9-billion, Seattle-based credit union. In December 2010, however, the credit union brought in 1,750 more members than it did in December 2009. The bump in membership (6,950 in 2010 versus 5,200 in 2009) was fueled by area competitors notifying customers that free checking will soon be a thing of the past. 

“We definitely see it as a window of opportunity,” Berquist says of the market shift toward fee-based checking.

BECU offers free checking to most members. Its Member Advantage Account is free for members who enroll in e-statements and use at least one remote service per month. The checking account is the hub of a member relationship, Berquist says, and the BECU staff recognizes the importance of the Member Advantage solution as vehicle for growing member relations.

Elizabeth Hayes, executive vice president and chief administrative officer at Affinity Plus Federal Credit Union ($1.3B, St. Paul, MN), has seen institutions shed free checking in the face of anticipated revenue declines.

Affinity Plus offers its members a Better Than Free account. The credit union also offers a Participation Awards program that allows members to earn points for using a debit card, enrolling in online services or getting a new credit union product. The points can be used to avoid fees and reduce rates.

For Hayes, the emphasis on free checking reflects the value of this core account. For Affinity Plus, each account generates between $9.25 and $10.50 per month.

Members with checking products participate more, she says. And that drives revenue. These members are in the branch, they’re calling to talk to representatives, and they’re interacting with the credit union. 

Affinity Plus has results to back up its strategy. Four years ago, checking penetration was at 39%; now, it is at more than 50%. In the past two years, the credit union has added more than 15,000 new checking accounts.

Adding fees to checking accounts might be an easy move to make. The potential “easy” income is an understandable lure. But the market is presenting an incredible opportunity for credit unions to gain consumer awareness of the credit union difference and provide free checking as a strategy that will provide immediate and long-term revenue growth.