Why Bankers Will Increasingly Say, “May I Take Your Order?”
You can get just about anything made to order. Sooner rather than later, you may be able to design your own bank account. A la carte banking is catching on. You get a bare bones checking account and add bells and whistles if you so desire.
What's fueling the trend? “Banks are facing substantial challenges with fee regulations and low interest rates, they are trying to recover revenue,” says Sherief Meleis, a partner with Novantas, a consulting and research company, specializing in financial services.
Furthermore, the emergence of lower-cost prepaid cards with improved price transparency pushed many financial institutions to reconsider their reliance on punitive pricing models, says Tom Feltner, director of financial services at the Consumer Federation of America. “Empowering consumers to choose the features they want and pricing them in a way that allows them to understand what their typical monthly cost will be, based on their financial behavior is a dramatic improvement,” says Feltner. “Dinging consumers with repeated overdraft charges for relatively small negative balances and offering no clear way to estimate total monthly transaction costs has pushed some consumers out of checking accounts altogether. A la carte banking represents a strategy to bring them back to the bank,” says Feltner.
Some financial institutions are unbundling overdraft, bill pay, out-of-network ATMs and billing statements, says Feltner. Take for example, Union Bank's, Banking by Design that was launched last October. New and existing Union Bank customers can get a checking account with a base cost of $3 per month, which can be waived if they make one direct deposit of $250 or more each statement period. For $1 each per month you can get incoming wire transfers, cashier's and traveler's checks, express phone customer service, paper statements, among other options. You can also build your own checking account at Frost Bank. You pay a $5 base fee that includes online and mobile banking, email alerts, online statement delivery, and more. For $2 more a month you can get unlimited online and mobile bill pay, paper statements and fees waived for gift cards, money orders and traveler's and cashier's checks. There are discounts and waivers. For example if you've been with Frost from 6-14 years, you qualify for a reduced monthly base, $3, and you get add-on features for $1 a month.
A la carte banking is primarily for checking accounts, but Meleis reports that he has seen a credit card issuer offer a customized credit card where people can design a product that best suits them. A checking account is the main connection people have with their bank along with carrying the bulk of bank fees, it makes sense that banks would restructure these accounts first, says Alex Matjanec, co-founder of MyBankTracker.com, “But in our opinion, a la carte could be for any type of product.” He adds that large banks like Chase and Regions are dipping their toes into these types of products through their recently launched prepaid products. “A la carte checking is the evolution of prepaid cards, which are build on a pay per use model.”
So is a la carte a plus for consumers? “You get exactly what's the best fit for you at the right price,” says Meleis.
But there are disadvantages too. “While there are some people who will want to manufacture their own product, the bigger segment of consumers may find a la carte banking confusing, particularly if they are doing it online,” says Meleis.
A la carte banking means that consumers will have to be more vigilant than ever about monitoring their financial transactions and make sure they are choosing features they want and use, says Feltner. Then too, many people who have long had free accounts may be alarmed by rising fees or fees for what historically had been free. He says research shows that many people have problems meeting the direct deposit or minimum monthly balance/deposit requirements in order to get checking account fees reduced or waived.
“The main downside is that banks could become greedy and charge for everything to the point it is better to carry a large balance to avoid all fess. At that point we are back to where we are now,” says Matjanec.
Perhaps a better option than a la carte banking, says Meleis, would be a hybrid product, where the bank constructs different combinations of packages, you get asked a set of question and the bank configures a product for you based on your priorities. For sure, says Meleis, “You will see more and more banking products that are tailored.”