<p>ATLANTA, Ga. – Checking accounts remain the key to credit unions becoming members' primary financial institution, but that might be one of the few things that has remained constant about checking accounts. In fact, as findings from a recently conducted survey show, checking accounts are not necessarily profitable in and of themselves, even though they are still key to profitability for financial institutions. Tim Smith, director of credit union strategic marketing for Harland, admitted even he was surprised by this finding of the "National Consumer Checking Account Preference Study" conducted by Harland among 16 credit unions and two thrifts. "A lot of financial institutions are going to the concept of totally free checking to improve their profitability because they believe that the greatest profitability on a household basis is on an account with totally free checking. In fact, the survey shows the opposite is the case," says Smith. The survey found that while the average annual profit was $7 for all checking accounts, 57% of them were actually unprofitable on a stand-alone basis. Moreover, two categories with a significant portion of interest-earning accounts are more profitable: On a stand-alone basis, relationship accounts are the most profitable ($43) followed by no-fee, interest-paying accounts ($3). The free-without-interest accounts earned -$7, and the least profitable accounts are those that always charge monthly fees (-$30). Smith says there are two ways to look at a checking account – is the account itself profitable? Does the account generate profitability in the household relationship. Most financials treat checking accounts the first way. As for the alternative, Smith says financials would be surprised to learn they can actually generate profits by not charging fees and giving interest on checking accounts. The secret, says Smith, is that the profit is coming from the rest of the relationships the financial has with the household. "Conventional wisdom says in order for a financial to make a profit, it has to recover its costs, which means fee checking. In fact the opposite is true," says Smith. "There's really no such thing as a `plain vanilla' checking account anymore. Rather there are choices.Designing and promoting the `right' package, the one with the combination of features, benefits and appeals that can might either pull people over from other sources, or lock them more securely into present relationships, is the greatest competitive challenge for anyone who plans to stay in the consumer banking business," wrote Tony Ward-Smith, a Seattle-based management consultant, and Fred Ringenburg, vice president of transaction services for CUNA Services Group, the authors of the survey report. They advised that, "Offering a win-win checking account must be a central objective for any serious player in total's consumer banking game." They also emphasized that, "Almost every adult has at least one checking account, and for the market as a whole, growth – in terms of new accounts – has leveled off considerably. So those who want additional growth can no longer expect it to come from meeting unmet needs, but rather must see it as pulling business away from the competition.by getting consumers to switch `brands' or sources.While it is important to maintain high levels of service and convenience satisfaction, these will henceforth be seen by consumers as minimal performance requirements, and future competition must focus more on hard features that distinguish one product offering from another, one source from another." So what does it take to convince members who have checking accounts at other financials to close those accounts and open share draft accounts at their credit union? The key, says Smith, is customization. Credit unions need to understand their members better; tailor a product mix to those needs; look at how the checking account products are priced; target their marketing efforts; and use the full bandwidth of promotional tactics to get the message out to members about their checking account options. "Credit unions shouldn't expect one marketing mechanism to deliver the entire message," says Smith. The report's authors put it this way: "Consumers must first be `put in play' as a result of either a change in situation or dissatisfaction with the established source before product features become effective." Is there a single structure or formula for the "right" checking account? "Absolutely not. In the emerging world of one-to-one marketing, check account products must be flexible, yet easy enough for frontline staff to describe.New checking products will require a paradigm shift in how profitability is earned and measured," the report authors wrote. – [email protected]</p>