INTEREST BUSINESS CHECKING - SO NOW WHAT?

A little more than a month after Reg Q went by way of the tail fin, we are starting to see the introduction and adoption of interest business checking. Unfortunately, we are not seeing a whole lot of naming creativity, as most banks have decided to go with the descriptive, but boring name of you guessed it - "Interest Business Checking." While Capital One was the first to launch the product (under our favorite "Clear Checking" name), others have followed suit, including Wells Fargo, BB&T, PNC, Key, Suntrust, M&T, TD, Bank of the West and others. Most of these banks have rolled out 1-3 tier structures, paying in the range of 10bp to 20bp, with about 13bp being the average. Some banks, like Capital One, have launched aggressive marketing and decided to play the game on rate. Capital One offers above a 1% rate for specific balance minimums and maximums. Others, like Northern Trust, have decided to pay a minimal amount of interest and seem to be offering the product as a defensive measure. For them, about half of accounts require around a $3k minimum balance to waive fees, while the rest require nothing. On the other hand, some banks that require no minimum balance, have instituted a fee of around $14 per month. One interesting aspect of business interest checking are the number of banks that are offering a hybrid product that pays an earnings credit up to a given balance and then pays interest thereafter. Usually under the equally succinct name of "Analyzed Business Checking with Interest," this is a true service product and is likely to catch on the most. To date, banks such as Wells Fargo, PNC, Suntrust, TD and Webster all offer this product. Given this information, the real question is what are you going to do about it? Many community banks put off this decision in order to see what others are doing. Does the above list make you now want to move or are you going to wait for other major banks to do something? How many banks do you need to enter your market before you offer a business interest checking account? These questions are difficult, as there are no right answers. Offer the product too early and you risk increasing your deposit costs and possibly attracting even more liquidity that you can't invest. Offer the product too late and you end up playing catch up, most likely competing on rate to keep customers. While every bank is different, it is certainly hard to say you are about service if you fail to offer what looks to be the core of cash management platforms in the next several years. At a minimum, we recommend taking a look at the bank products mentioned above and seeing how they package and market business interest checking. We have yet to see a bank get aggressive and go after the money market funds and brokerage accounts of small and mid-sized business, but we know it is coming. While bringing on more liquidity right now hurts margins in the short run, the very act of having money in a money market mutual fund or a brokerage account is a marker for an account with above average profitability. Getting these accounts in early (while it is easier, given current market volatility) and cross-selling the customers into profitable products should be worth the effort in the long run. In the coming months, we will have a chance to run our relationship profitability analysis on business interest checking and will report back on the profitability range for variations of this product. Until then, if you are still choosing to wait, at least give the product additional thought, including a catchy name.