Two things surprised the folks of Fifth Third’s product group since the rollout of the low-cost Express Banking account.
One surprise was how many people have said “yes” to the debit card option, pairing it with the account’s mobile app. The group expected about half of the roughly 200,000 people who have opened the account since November 2015 to ask for the card. In fact, the “vast majority” have done so, according to Mark Erhardt, senior vice-president, retail product management, for the $140 billion-assets, Cincinnati-based bank.
The other surprise was that use of direct deposit of payroll into the account has exceeded the bank’s expectations. Erhardt says only that it is a “pretty high number.” By using direct deposit, customers who don’t need to write checks have a “completely self-service, no-fee account,” he says.
Express Banking is a low-cost account option built around check cashing, but with a number of other features, including loyalty pricing. [The section at the conclusion of this article shows some features of the Express Banking account, which does not allow check writing or overdrafts.]
Certainty has broad appeal
Going back several years, Fifth Third had been gradually expanding its customer base by introducing fee-based check cashing (in conjunction with check guarantee firm Certegy), Western Union funds transfers, and prepaid cards, in addition to the cashiers’ checks and money orders most banks offer.
As it developed expertise in these areas, says Erhardt, “We thought, ‘Let’s take this to the next level.’”
The resulting Express Banking program is essentially a branch-based, check cashing service with a mobile component added that allows full and immediate availability of mobile-deposited checks, if approved, along with the ability to get cash or make purchases using the debit card.
“The whole premise,” says Erhardt, “was to develop an alternative product that exists in parallel with our traditional products.”
Fifth Third has three traditional checking accounts: Essential, Enhanced, and Preferred. Each carries a monthly service fee that can be waived by meeting certain balance requirements.
The Express Banking account—and that’s what it is, an account running on the bank’s core deposit system—has no monthly service charge and no minimum balance requirement. In fact, no deposit at all is required to open an Express Banking account. (One exception is if a customer wants to add a savings account, which requires a $50 initial deposit.)
Erhardt says Express Banking was designed to address the needs of the unbanked and the so-called underbanked (people using a mix of bank and nonbank services).
There is another target segment, he says: people dissatisfied with traditional banking (usually because of a bad overdraft experience). Express Banking does not allow overdrafts. If insufficient funds are in the account for a debit transaction, it is declined. There is no fee for insufficient funds and, of course, no overdraft fee.
Express Banking is not positioned as a starter account, and Erhardt says the bank doesn’t view its other checking accounts as upgrades. Choice of account is very much based on customer preference, he says.
Asked about the demographics of Express Banking customers, Erhardt responds that by age, they skew younger: “slightly over-represented in the working years (35-54), slightly less represented in the preretirement years, and less represented in the retirement years.”
“We do very little traditional marketing” for Express Banking, Erhardt adds. The bank relies extensively on working with community organizations that focus on financial literacy to get the word out.
The bank conducted focus group research prior to final development of the new account both as a way “to get into the mind-set of the consumer,” and to validate features of a “straw man” product it had put together.
The researchers didn’t indicate that it was a bank conducting the focus group, Erhardt notes. One of the findings was that banks were seen as likely to provide better service for this type of program, particularly in contrast to a clerk at a retail store offering check cashing.
Erhardt says the bank also spoke about the new accounts with its front-line bankers from among its approximately 1,200 branches. Management wanted them to understand and see the value of Express Banking, so they would be comfortable standing behind it.
According to Erhardt, several front-line employees made comments along the lines of: “I know who to offer this to.” He points out that they would see the same customers come in week after week with a payroll check drawn on Fifth Third, cash it, and then make no deposit.
Discounts reward usage
The fact that Express Banking is an account, not a product, “allows us to create a customer record on our core system,” says Erhardt, including the usual know-your-customer and other data.
This integration into the mainstream of the bank enables a key feature of the account: progressive discounts for usage.
Whether or not a person runs a balance in his Express Banking account is irrelevant. Every qualifying transaction—including branch and mobile check cashing, direct deposit, debit card purchase, and purchase of a Western Union money transfer or a cashier’s check—is tracked by the system and counts toward three tiers of pricing for the fee-based services.
These tiers are:
• Tier 1 (four transactions or fewer), standard pricing.
• Tier 2 (five to 15 transactions), 25% discount.
• Tier 3 (16 or more transactions), 50% discount.
Here’s what makes this arrangement unusual: those transaction levels are cumulative and exist for the life of the account.
“Customers don’t have to re-earn the discount every month,” points out Erhardt. “We didn’t want people getting to Tier 3 and then dropping back to Tier 1. Once they qualify for the higher discount, they keep it, so they don’t have to worry where they are.”
Customers can view each transaction and the fee associated with it online or on the mobile app.
Erhardt says the bank does have an overall usage requirement. If an account has remained inactive for 13 months, the bank will close the account. He indicates that a few of the roughly 200,000 Express Banking accounts opened to date are beginning to reach that point.
Regulators like it
In addition to marketplace success, Erhardt notes that Express Banking has garnered positive feedback from both consumer groups and regulators—the Consumer Financial Protection Bureau, in particular. One reason, he explains, is because the bank puts the account “right out there”—that is, it’s not a “keep-it-in-the-drawer” kind of option, he says.
“We have a sales tool we call a ‘place mat,’” Erhardt notes. It’s an 11 inch x 17 inch laminated sheet on which various products are listed for the bank’s retail officers to review with customers. The three core checking accounts are shown, and Express Banking is right next to them in a “box” of a different color, according to Erhardt. He adds that Express Banking has been incorporated into Fifth Third’s points-based incentive compensation plan.
The pricing structure of Express Banking’s check cashing service is “very competitive with nonbank check cashing services,” says Erhardt. With personal checks, the bank’s fees are usually considerably lower, he says.
Erhardt acknowledges there are some “deep discounters” in the check cashing business, notably Walmart. Often, however, such discounters will not accept personal checks, he notes. “They want you to cash your payroll check and spend it in the store,” he observes.
Other banks naturally will be curious to know if Express Banking adds to Fifth Third’s bottom line. Erhardt gives a few clues, without being too specific.
In regard to average balances, Erhardt notes that because some of the accounts carry no balances, the overall average is low. Looking only at active users, the average balances are “not much different from a low-balance, starter checking account,” he says.
As to whether or not the accounts are profitable, Erhardt offers this assessment: “It is a sustainable, long-term product. It is not subsidized by revenue from other products. It pays its own way with some return for our shareholders.” For competitive reasons, he declines to say more.
Overall, though, Erhardt says Express Banking has been “a great success for us.” It resonates with customers, regulators like its inclusiveness, and it allows the bank to expand its reach beyond its traditional product base.
“Employees are proud to offer it,” Erhardt says. “It’s a good differentiator.”
Express Banking Features
• No minimum deposit required
• No monthly balance requirement
• No monthly service charge
• No overdrafts, thus no OD fees
• No non-sufficient funds fees
• Check cashing and deposits at Fifth Third branches*
• Mobile check deposit with immediate availability*
• Optional debit card*
• Free cash withdrawals at all the bank’s ATMs in addition to any Allpoint ATM
• No check writing and no check deposits at ATMs
• Mobile and online banking (but not online bill pay)
• Identity protection*
• Discounts of up to 50% on fee-based services, including money orders, cashiers’ checks, and Western Union money transfers based on three tiers of account activity