By Bill Camarda
Of course, each SME’s customer profile is different, so the impact of checkless banking on their customers’ payment preferences will vary. Broadly speaking, however, checkless banking is likely to be one more factor accelerating a continuing reduction in the volume of physical checks processed—already down another 4.8 percent in the Federal Reserve’s most recent survey, published in December 2018.1
To the extent that checkless banking accounts serve formerly unbanked customers, these customers will now be able to make electronic payments with debit cards, often for the first time. According to a 2017 FDIC study, only 7.2 percent of U.S. consumers without a bank account possessed a credit card, compared with 60 percent of “underbanked” households and 76.3 percent of those considered “fully banked.”2
Typical checkless bank accounts offer access to online and mobile bill payment services, and to online or mobile bank transfer systems such as the Zelle network. In that way, checkless accounts offer another boost to payment trends that are already accelerating. For example, Zelle’s 4Q18 payment volume jumped to $35 billion in 4Q18, 61 percent higher than a year earlier. Its key competitor Venmo reported 80 percent growth to $19 billion.3 As mobile bill payment moves aggressively into the mainstream, some companies that don’t yet accept or promote it may want to revisit the issue or accelerate their plans for adoption.
Sometimes called “no-frills,” “safe transaction,” or “core banking” accounts, checkless banking accounts provide most of the services of traditional checking accounts, including electronic payments through debit cards, mobile banking services, and access to ATM networks. Two traditional checking account features are conspicuously absent, however: paper checks, and overdraft protection. Banks typically charge significantly lower fees for these “bare bones” accounts than for contemporary checking accounts.4
Checkless bank accounts were originally envisioned as an electronic payment solution for lower-income households that have trouble accessing conventional banking services, and have otherwise had to rely on more expensive non-bank financial services. In one study, unbanked individuals spent an average of $40,000 on alternative financial service fees over the course of a lifetime—fees that could be dramatically reduced if they had some form of conventional bank account.5
With even a checkless banking account, it typically becomes easier for consumers to securely deposit their earnings, efficiently make payments, access credit at a reasonable cost, and save for future needs or emergencies. Since account holders can’t overdraw checkless accounts, they won’t incur the high overdraft fees that have driven many people out of the banking system.6
Since the accounts’ electronic payments approach means banks needn’t process checks, it’s easier for them to offer checkless banking accounts at lower cost. Checkless banking also helps banks respond to regulatory pressure for greater investment in underbanked communities. For reasons like these, the number of U.S. banks that offer checkless accounts meeting the standards of a leading financial empowerment organization is expected to double this year to roughly 50.7
Since their debut, checkless accounts have gained a following among millennials and Generation Z consumers who never developed the habit of making payments by check in the first place, and among other price-sensitive consumer segments. This is driving growth in the marketplace beyond what might be expected if only low-income households were adopting checkless banking. CenterState Bank recently reported that over three million U.S. consumers have active checking accounts, make over $25,000 a year, and have never made a payment by physical check.8
Citigroup’s checkless account has represented over one-fifth of new accounts since 2017, and KeyBank’s product has attracted 800,000 accounts, making it the firm’s most popular product.9 According to an October 2018 study by the Federal Reserve Bank of St. Louis, four leading U.S. banks reported serving 1.3 million checkless-style accounts in 2017, nearly half of them opened within the previous year.10
Checkless electronic payments accounts that don’t offer paper checks or overdraft protection are catching on, attracting millennials and Gen Z consumers in addition to the low-income households they were originally created for. As these products gain traction, the number of consumers reliant on debit cards and mobile payments may grow, encouraging more businesses to accept and promote these forms of payment.
Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.
1. “The Federal Reserve Payments Study: 2018 Annual Supplement,” Federal Reserve; https://www.federalreserve.gov/paymentsystems/2018-December-The-Federal-Reserve-Payments-Study.htm
2. “2017 FDIC National Survey of Unbanked and Underbanked Households,” Federal Deposit Insurance Corporation; https://www.fdic.gov/householdsurvey/2017/2017report.pdf
3. “Venmo and Zelle’s P2P Battle Royale,” PYMNTS.COM; https://www.pymnts.com/digital-payments/2019/venmo-zelle-p2p-transactions-q4-earnings/
4. “Bank Accounts Designed for Low-Income Customers Find Broader Audience,” The Wall Street Journal; https://www.wsj.com/articles/bank-accounts-designed-for-low-income-customers-find-broader-audience-11546533480
5. “The Present and Future of Bank On Account Data: Pilot Results and Prospective Data Collection,” Federal Reserve Bank of St. Louis, http://joinbankon.org/wp-content/uploads/2018/12/The-Present-and-Future-of-Bank-On-Account-Data-Pilot-Results-and-Prospective-Data-Collection.pdf
7. “Bank Accounts Designed for Low-Income Customers Find Broader Audience,” The Wall Street Journal; https://www.wsj.com/articles/bank-accounts-designed-for-low-income-customers-find-broader-audience-11546533480
8. “How P2P Will Fuel Checkless Banking,” CenterState Correspondent Division; https://csbcorrespondent.com/blog/how-p2p-will-fuel-checkless-banking
9. “Bank Accounts Designed for Low-Income Customers Find Broader Audience,” The Wall Street Journal; https://www.wsj.com/articles/bank-accounts-designed-for-low-income-customers-find-broader-audience-11546533480
10. “The Present and Future of Bank On Account Data: Pilot Results and Prospective Data Collection,” Federal Reserve Bank of St. Louis, http://joinbankon.org/wp-content/uploads/2018/12/The-Present-and-Future-of-Bank-On-Account-Data-Pilot-Results-and-Prospective-Data-Collection.pdf