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Consumer Banks are Starting to Explore Subscription Models

Exclusive discounts, cell phone insurance and roadside assistance are benefits more typically folded into credit cards than into checking accounts. But Howard Bancorp hopes that bundling these and other non-traditional perks into its checking accounts — and an app that makes them easier to use — will reinforce their value for existing customers, entice a younger audience and increase account activity.

In March, the Baltimore community bank replaced its checking accounts with three new ones, titled Essential, Extra and Extra+. Customers of Extra and Extra+ can access a suite of services, which includes the aforementioned discounts, cell phone and roadside benefits, along with identity theft restoration services, a health savings card, travel accidental death insurance and an extended warranty service.

There is a $7 monthly fee attached to the Extra account, while a $15 monthly fee accompanies Extra+, although it can be waived by meeting average balance or other conditions. One question, for Howard Bank and the other banks and fintechs testing subscription models, is whether customers who’ve grown accustomed to free checking will be willing to shell out $7 to $15 a month for a specific set of extras. Early results are promising. In the month after Howard converted 10,000 existing customers to the Extra account, from around mid-February to mid-March, more than 90% chose to stay. In the same timeframe, 59% of new accounts were for Extra or Extra+. The bank hasn’t advertised these new products widely yet, beyond within its branches and on the website.

Customers of the new accounts get the fullest array of benefits by downloading a separate app, HBExtras, which can also alert the user when they are near local retailers that have partnered with Howard to offer coupons to its customers. Customers will get a link via email or text to download the HBExtras app through the App Store or Google Play.

“Customers typically don’t embrace change, but we thought this was a risk worth taking to try to reengage a certain portion of our checking portfolio,” said Drew McKone, chief deposit officer at the $2.6 billion-asset bank.

With this offering, Howard Bank is tapping into Americans’ enthusiasm for rewards and mimicking challenger banks like Varo, N26 and Revolut that offer perks easily accessible through an app.

It’s unusual to see traditional banks offer such perks bundled together and offered as a package with a checking account, said Caroline Vahrenkamp, who leads research at Raddon, a research and analytics company in Schaumburg, Ill. Besides inspiring existing customers to upgrade their accounts, the fees for such services could be a valuable source of non-interest income for banks.

“I don’t think it’ll move the needle to get people to your institution, but it could re-engage with the people you have and make sense on the balance sheet,” said Vahrenkamp. “Some of these services have perceived value but not a lot of actual cost to the institution.”

Howard Bank is hoping for several outcomes.

One is to make these new accounts more attractive to current customers, who may be willing to pay $7 per month for services that would cost far more to piece together on their own. Another is to reel in a younger audience who are comfortable using apps and mobile banking, “a demographic we’ve had difficulty appealing to in the past,” said McKone.

Engaged customers are more likely to actively use their debit cards and other banking services, and consider Howard their primary relationship. The HBExtras app is white-labeled from BaZing, a product of StrategyCorps, which is a company in Nashville that helps financial institutions enhance their checking accounts. The StrategyCorps website claims that accounts with mobile rewards see higher account balances, more debit card swipes and higher frequencies of overdraft or non-sufficient funds annually.

Daniela Hawkins, managing principal at technology and management consultancy Capco in Charlotte, N.C., notes that the mass affluent world of credit card users will probably still find traditional credit card rewards more appealing, because they offer similar perks alongside cash back. But “It’s a great value proposition to add on these features that you traditionally find with a credit card,” she said. “Folks who may not qualify for a high-value credit card can now get these features linked to a checking account.”

She feels that the identity theft service, roadside assistance and travel accident insurance are table stakes, but the cellphone protection is a big one.

“People drop their cell phones and crack the screens all the time,” she said.

A slew of benefits, including cellphone protection, are baked into BaZing’s general offering. But banks can also customize their app by sourcing mobile coupons from local businesses, which McKone plans to do in June — and perhaps forge banking relationships with new clients simultaneously.

When customers turn on the geolocation feature on their phone, the app will alert them to nearby deals. Because these deals are redeemed at the point of purchase within an open loop system, no user information is passed back to the merchant.

McKone chose StrategyCorps’ BaZing because its profitability model didn’t depend on Howard acquiring new accounts; instead, StrategyCorps only gets paid per account in the Extra and Extra+ program.

“We liked that StrategyCorps was compensated on our success and not on the anticipation of our success,” said McKone.

The company has worked with nearly 350 financial institutions throughout the U.S., generally ranging in size from $250 million to $30 billion of assets.

As long as banks watch out for potential competition with their own rewards credit cards, “I could see more community banks and retail banks picking this up over time,” said Hawkins.


This article was written by Miriam Cross from American Banker and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to [email protected].

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