An Austin, Texas, banking research and development firm saysit's offering rewards checking to help community banks and creditunions take back market share from the largest national banks.

While acknowledging that credit unions and community banks haveusually been more active competitors than cooperators, Don Shafer,CEO of BancVue, argued that the frequently strident competition hasmeant they have ignored their real challenge: big nationalbanks.

“In 1994, only 15 short years ago, community financialinstitutions, banks and credit unions, had roughly 70% of themarket for financial services, and the biggest banks had roughly30%,” Shafer said. “Now it's reversed, the largest banks haveroughly 70% of the market and community financial institutions havelost out.”

BancVue specializes in market research and product developmentto allow community banks and credit unions to compete effectivelywith banks. The most recent example of their products is rewardschecking

Rewards checking accounts carry significantly higher interestrates than banks, credit unions or community banks have usuallyoffered.

Shafer said BancVue developed the product and the softwarepackage to implement it at banks and credit unions afterresearching the products and services the large national banksimplemented to lure consumers.

Shafer reported that the research had found interest-bearingchecking accounts-particularly higher interest than credit unionsand banks generally offered-were key to gaining new members orcustomers. It also showed that community banks and credit unionscould profitably offer these accounts if the accountholders werewilling to do certain things that, Shafer maintained, mostconsumers would do anyway.

Accountholders who want rewards checking accounts must agree touse direct deposit, if possible; to use their debit cards at least10 times per month; to log onto to online banking once a month andto use e-statements instead of paper statements.

Shafer said that direct deposit is becoming steadily morepopular and remains one of the stickiest parts of the bankingrelationships. He also said the requirement to use their debitcards 10 times a month serves as a threshold for greater debit carduse.

“What we have generally found is that if they commit to usingtheir debit card at least 10 times per month, they are probablygoing to use it 20, 25 or 30 times,” he said.

Requiring at least one log-on to online banking per month makesit more likely that the accountholder will become accustomed tochecking balances and doing other routine tasks online rather thancoming into a branch or using a call center. And the use ofe-statements further cuts the cost of both resources andpostage.

Once drawn in by the checking account, Shafer said the newcustomer or member can then get to know the institution andconsider the full menu of services and loans, such as CDs, autoloans, mortgages and credit cards.

The rewards checking account benefits don't just stop at higherinterest. The checking accounts also carry nationwide free ATMaccess for the accountholder, as the bank or credit union commitsto reimburse the account holder for fees from ATMs deployed byother financial institutions or retailers.

Shafer also explained that rewards checking could be tailored tomeet different criteria. For example, BancVue's research found thatcollege students will often keep the accounts they open while incollege for up to three, four, five or more years after they leaveschool. But since they generally carry only smaller balances, theyare usually not impressed with higher interest rates.

The solution? Rewards checking accounts aimed at students cancarry a slightly lower interest rate but also offer $10 per monthin iTunes credits, Shafer said, a reward that more college studentsindicated they would find more attractive.

Of course, offering a great checking account is only good if youhave a way of advertising it to consumers, Shafer added. So BancVuehas a subsidiary firm, First ROI (www.firstroi.com) that helpscredit unions and community banks develop a branded presence on theInternet to introduce their institution to consumers.

“People confuse having an online banking site and a Web sitewhere you market your credit union,” Shafer said. “They are not thesame thing and you really need the one to bring people to theother.”

Shafer said this is particularly true for younger consumerslooking for convenience.

“My 22-year-old daughter could have a credit union branch builtin her backyard,” Shafer said, chuckling. “And if she had to walkjust a few feet across to it, that would be inconvenient comparedto just accessing her account and information on her laptopcomputer.”

Shafer said that BancVue has over 600 financial institutionsaround the country using its rewards checking product, includingmore than 170 credit unions. The company has been in business since2003 but only began working with credit unions in 2006 because,Shafer said, the company didn't previously understand credit unionsor how they worked or that they were as much of a part of
community banking.

Jerrold A. Kinlock, CEO of the $329 million Sacramento CreditUnion, recounted that his credit union was the first in Californiaand maybe the first in the country to use the BancVue rewardschecking in the fall of 2006.

“We are overall very pleased with the program-very pleased,”Kinlock said. “The program has pretty much done everything theysaid it would do.”

Kinlock said the credit union rolled the new checking accountsout to members internally first before approaching the market withit and found both current members and new members very enthusiasticabout it.

“We have seen higher balances, on average, in the rewardschecking accounts than in the others. We have seen those accountsmore stable. We have seen the number of transactions per account,primarily debit, hit an average of 25 per account, per month,” headded.

He also noted that the ATM rebate program, which is a verypopular part of the rewards checking account, cost the credit unionless than a dollar per account last month.

BancVue plans to continue its push forward getting the messageout and helping new and existing financial institution clients drawnew accounts to rewards checking. The firm's most recent researchindicates consumers are eager for the message.

The company noted that its most recent research found thattwo-thirds (67%) of bank account-holding Americans admit theywouldn't hesitate to consider a new banking relationship. Thisconfirmed a recent J.D. Power and Associates' 2009 Retail BankingSatisfaction Study that found that only 35% of customers werehighly committed to their retail bank in 2009, compared with 37% in2008 and 41% in 2007.

This marks a two-year decline of six percentage points incustomer commitment since the 2007 study, BancVue said. Again,according to the BancVue study, Americans with most of their moneyin large banks are antsy to change-three in four (75%) would bewilling to make a change vs. 60% of those with their fundselsewhere.

But Russell Dennick, chief financial officer of the $900 millionOregon Community Credit Union, reported that the rewards checkinghas worked almost too well.

The credit union rolled out the program, which it called“Remarkable Checking,” in April of 2007 to help it gather depositsin an era of low liquidity and hoped for $85 million in the firstyear. Oregon Community wound up taking in about double that amount,Dennick said, without much marketing or advertising.

“It was viral marketing at its finest,” he said. “We didn't saymuch about it because we didn't have to-someone told someone elsewho told someone else.”

The credit union saw its average Remarkable Checking balancerise to $12,000, and Dennick said the CU finally had to cap theamount of money that could be put in a remarkable checking accountat $100,000.

“We had some people coming in and making $500,000 deposits inthe checking accounts and doing nothing else but making the minimumcommitments to the accounts. Those size deposits have persistedeven through the economic downturn despite Oregon Community cuttingits interest rate on the Remarkable Checking accounts to 3.01%.

“What the BancVue product did for us was allow us todifferentiate our products and break out of the mold in ourmarket,” Dennick said. “Around here a checking account was achecking account was a checking account-but ours wasn't andthat made all the difference.”

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