Number of Checking Accounts Fall as Checking Balances Rise

By Michael Moebs05.29.2018

Depository checking accounts are falling, yet balances rising, as the new kids on the block, fintech firms like Walmart, pick up what is being let go. Moebs Services, a financial service research firm, has affirmed this trend using bank, thrift, and credit union data from the FDIC, NCUA and the Federal Reserve. Most depositories don’t realize that Walmart, and soon Amazon, are taking away their key service.

The total number of checking accounts peaked nationally in 2011 at just under 700 million accounts per the FDIC, NCUA, and Fed data. Since then total checking accounts have declined at depositories. In 2017 total checking has fallen to slightly over 600 million accounts. This is a decline of about 100 million accounts, over 12% in the past six years, or about 2.2% a year. Total checking balances have more than doubled in the same period from $0.945 trillion in 2010 to $2.110 trillion in 2017.

Checking in Transition

Checking accounts are in a transition period. The number of depository accounts is declining from competition with fintech firms such as Walmart, Starbucks, and Apple.

The fintech firms are taking transaction checking away from depositories. Why? Depositories are shedding mostly single service households with free checking accounts with low balances and high transactions in favor of relationship checking accounts. Relationship checking is where there are two or more services with one consumer or business relationship.

The relationship dynamic is to have checking become profitable when associated with at least one other money-making service rendering the relationship lucrative. Otherwise depositories are glad to let go of unprofitable, high-transaction, low-balance, and often-free checking to fintech firms.

What Are the Consequences of These Trends?

American consumers are very unsure of their financial future. In uncertainty, a person will retain and hold money until the future becomes clearer – this is why checking balances are rising. Yet, consumers and businesses while waiting for a more stable future will seek a less costly checking account.

If the checking user does not maintain a high balance and has just transactions, banks, thrifts, and credit unions will often consider them unprofitable. The fintech firms welcome small-balance checking users because they reduce costs by not paying interchange, or swipe fees – Walmart pays millions in interchange each year.  So, if a Walmart customer swipes a debit card or prepaid card from Walmart, Walmart does not have to pay swipe fees.

Depositories need to stop the outflow of the checking account transaction user who keeps no balance and focus on reducing operational cost and installing lower fees to make checking profitable. Otherwise, the likes of Walmart and Amazon will soon dominate the checking account business.

Michael Moebs is an economist and CEO of Moebs Services, an economic research firm.