By  Sat Nov 10, 2012

À-la-carte Banking Becomes a Reality

You can choose the parts for your new computer. You can select the features of your smartphone mobile-subscription plan. You can “build a bear.” Customization: a retail model that thrives on offering autonomy and transparency to consumers, who can choose to pay for only the features or services that they want. The banking industry has largely avoided this “à la carte” model, but that is no longer the case.

Union Bank, the fourth-largest bank in California by deposits, has introduced a new program that lets customers design their own checking accounts, unlike the pre-configured accounts available at most banks.

Through Union Bank’s “Banking By Design” platform, customers create a checking account that starts off with a base monthly fee of $3. Additional features, some of which have monthly fees, can be added on.

Some of the free features include a debit card, online and mobile banking, electronic statements and account alerts — these are normally free with most checking accounts anyway.

One fee-based feature is fee reimbursements for two transactions made at non-Union Bank ATMs per month, which adds $3 per month to the base account fee. Normally, Union Bank charges $2 for using a non-Union Bank ATM ($5 internationally), and the ATM owner may impose additional fees. Without this account add-on, the fees would total at least $4 on two non-Union ATM transactions per month.

Other add-on features that come with fees include paper statements, incoming wire transfers, unlimited checks, express customer service and more.

Although the base monthly fee of $3 can be waived with a monthly direct deposit of $250 or more, the add-on fees cannot be waived and they must be paid even if those add-on features are not used during the month.

Such customized checking accounts can provide you with the services you’ll use without having to pay for the services that you don’t use. With most other checking accounts, the miscellaneous perks — many of which you’ll never use — are usually priced into the fixed monthly fee. The opportunity to create a cheaper checking account can be a relief for the consumers who’ve watched bank fees increase in recent years.

Already seen in prepaid cards

This à-la-carte approach has already proven to be successful in the prepaid-card industry. Many prepaid cards come with a monthly fee and charge per-use fees on certain cardholder transactions, such as ATM withdrawals, bill payments and purchases.

NetSpend’s prepaid card, on the Pay-As-You-Go plan, charges $1 per signature purchase transaction (select “Credit” at checkout) and $2 per PIN purchase transaction (select “Debit” at checkout).

So, prepaid cards are good examples of a financial product that can cost more when you use it more. For many consumers, this “pay more, get more” model is fairer than checking accounts, which may be packed with features that they do not use and would not pay for.

Banks have noticed that appeal in prepaid cards, so they’ve even started issuing their own prepaid cards.

Chase and Regions Bank are two major banks that have begun pushing their own prepaid cards to consumers who don’t want (or don’t qualify for) a traditional checking account. Recently, H&R Block Bank discontinued its checking account because its clients have favored the bank’s prepaid cards.

Customization lets customers control fees

One big bank that hasn’t placed immense focus on prepaid cards but appears to offer “à la carte” banking is Wells Fargo. The bank’s basic checking account, called Value Checking, starts of with a $7 monthly fee but that fee increases to $9 if customers want paper statements (the fee can be waived with direct deposits totaling $500). Furthermore, online bill pay is not complimentary on this checking account. Bill-pay service comes with a $3 monthly charge (can be waived with a $5,000 balance). If a customer wanted these two features, which are standard on many checking accounts, the total monthly fee could be $12.

Now, look at Chase’s basic checking account, called Total Checking, which has a $12 monthly fee (can be waived) and it doesn’t impose separate charges for paper statements or online bill pay.

If a consumer, who doesn’t need paper statements or online bill pay, was deciding between Wells Fargo’s Value Checking or Chase’s Total Checking, she might just go with Wells Fargo because she doesn’t want to pay for services that she would not use — the same way she won’t pay for a $30 unlimited text-messaging plan when a $20 500-text-message plan will suffice.

Banking By Design from Union Bank can attract such a consumer by offering its bare-bones checking account that can come with a plethora of upgrades, if the customer is willing to pay for them.

Currently, the platform is available only in California, but Union Bank plans to expand to other regions after reviewing the response by customers. “We are also market testing several features that can help simplify customers’ banking and exploring and evaluating additional waivers,” said Maha Madain, head of consumer deposits at Union Bank and chief designer of Banking By Design, in an email statement.

Additional fee-waiver criteria can increase the customization options of the Banking By Design platform. Not everyone has direct deposit, can maintain a minimum account balance or make a certain number of debit-card purchases. Imagine being able to choose or customize the fee-waiver condition that applies to your checking account, which would truly become a checking account that fits your financial habits.

If Union Bank’s Banking By Design idea turns out to be popular with consumers, can we expect other banks to adopt a customizable “à la carte” banking model? We should hope so.

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