Ron Shevlin (@rshevlin) and Jim Bruene (@netbanker) and I have been back and forth Ron’s article today on so-called NeoChecking Account and the news of the GoBank (http://www.gobank.com) here in the US yesterday.
Firstly, let me just say that seeing the likes of GoBank enter the market is great news for consumers and once again proves the viability of the evolved category-killer bank. While GoBank has chosen to use their recently acquired banking license (see http://labusinessjournal.com/news/2011/dec/09/green-dot-completes-bank-acquisition/), their GreenDot prepaid product was originally launched in the “Program Manager” style they referenced in their press release yesterday. However, the back-office model that GreenDot uses to support their GoBank roll-out is not as critical as the distribution strategy of de-linking checking accounts from day-to-day banking accounts. While GreenDot’s stock is down 8% today (at the time of print - http://investing.money.msn.com/investments/stock-price?symbol=US:GDOT&) I believe that ultimately this strategy will pay off in spades for GreenDot.
This non-checking, debit account strategy is the same approach that Simple pioneered, and the same model as our friends at and Bluebird deploy. It bodes well for the new category of ‘bank account’ that is highly utilitarian and not fully-loaded without outdated checking costs or overdraft fees. A bank you can use day-to-day. For those that read my blog regularly you’ll know that I’ve been discussing this fundamental shift in distribution strategy for some time and whether you call it a “Near Bank” (as Dave Birch does) or a NeoChecking account as Ron Shevlin does, this marks a fundamental re-classification of the basic bank account. An account that is classified not by it’s underlying product structure, but by it’s utility.
That’s why at Movenbank we’re going even further. We believe the basic bank account of the future will not only not have checks (or cheques), but it will reside on your phone which operates as your primary payment device. Thus it will also not have plastic. I’m sure GreenDot/GoBank, Simple and Bluebird will come to the same conclusion and optimize their experience for mobile payments and feedback in the future, but for now that distinction of the mobile-first bank account hopefully will remain with Movenbank for some years.
So let’s get to those two predictions:
1. The last personal check in the US will be written sometime in 2018
2. Sometime in the next 24-48 months a stock analyst will downgrade a major bank stock for use of checking accounts and excess branch capacity
Here’s my logic.
US Check Decline is readily predictable
According to the Federal Reserve Bank (US) in 2000 16.9 Billion commercial checks were written annually. By 2010 that had reduced by an incredible 55% to just 7.7Bn checks annually. However, the early impact of P2P payments and mobile has already seen a further 33% reduction in check use down to a estimated 5.1Bn by the close of 2012. With the decline rapidly increasing in speed from a 9.6% drop in 2009, to a 23.9% drop in 2011, we can expect this only to speed up. On a simple trending basis then, the last commercial check to be written in the United States will be signed in either 2017 or if you are really optimistic in 2018. Unless consumer behavior reverts to 20th century norms and the check comes back into fashion – yeah sure…
Thus the checking account is already dead, most banks and CUs just don’t know it already. So positioning a basic account without checks does not only make sense today, it should be your mainstream day-to-day account offering, especially for the Y-Gens coming to your brand.
Stock market analyst shift is inevitable
The biggest measure of a commercial bank stock with a dominant retail play remains both annual revenue, capital and loan book (ability to generate future revenue). What will become clear as the modality and acquisition of the basic bank account shifts (lower paper KYC hurdles, less friction, more online and mobile enablement) is that “account opening” and the ability of cross-sell/up-sell to lead to future revenue will be closely examined. At that point, lower friction engagement models and cheaper distribution strategies will be seen as better growth levers than traditional friction-heavy, branch processes. Any banks carrying excess stock where distribution processes could have already been moved to mobile, tablet or online engagement at much lower costs, will be penalized hard.
I predict that 2014 will be the year we see a financial analyst downgrade a major bank’s rating based on excess branch capacity for this reason.
It’s all connected by changing consumer behavior and engagement.
Whichever way you look at it, 2013 is a hell of a year for bank innovation.