In Low-Interest Climate, Banks Spend Cash To Lure Customers

If you think you’ve seen more bank promotions offering cash in exchange for opening a checking account, you’re right.

One of the most lucrative currently is from Chase — $200 to open one of its Chase Total Checking accounts, available only to new customers. Chase recently went even further, said Andrew Schrage, co-owner of the Money Crashers Personal Finance blog, which bills itself as a consumer guide to financial fitness. He cited a promotion in which customers who opened both checking and savings accounts could get $350 from Chase.

Of course, customers must also fulfill their part of the bargain, meeting requirements that usually involve setting up a direct deposit to the account, along with other steps that depend on the offer.

Consumers are well aware of credit card promotions offering cash back and airline miles, and they’re familiar with the bank promotions that promise an iPod (or a toaster, back in the day) in exchange for opening an account. But a number of banking insiders and financial writers agree that the current crop of cash offerings is a bit of a twist on such time-tested marketing efforts.

“My personal opinion is that it’s kind of indicative of society’s wanting an immediate response, an immediate reward, something that’s very tangible,” said Beth Ardoin, director of communications at IberiaBank Corp., based in Lafayette, La. “Not everybody may need a toaster, but everybody can use cash. I think that it’s just an evolution of marketing trends, and it’s going to this all-cash type offer.”

Chase, the biggest bank in the United States as ranked by assets (more than $2 trillion as of March 31), has no branches in Arkansas, but banking increasingly is as virtual as any other activity, so brick-and-mortar components, while still important, are becoming less so. And online offers create competitive pressure for local operators as well.

Asked about its offer, Greg Hassell, a Chase spokesman, said, “It is a competitive marketplace, and we have several types of promotions to capture customers’ attention.”

What’s behind the free lunch? Interest rates and cost-cutting.

Customers “have pretty much minimal hope for gaining any kind of return on their deposits and so a common reaction to that is ‘Hey, well why not just go ahead and store my own money underneath my mattress and call it a day,’” said Jennifer Calonia, the editor of GoBankingRates.com, another consumer finance site.

“Banks can’t attract new customers with solid interest rates because available interest rates just aren’t that attractive these days,” said Schrage. “The average interest rate on a checking account is a paltry 0.51 percent, and with the recent recession, offering a free appliance just won’t cut it anymore — customers want cold, hard cash.”

In addition, banks see savings when customers agree to forgo mailed paper statements in exchange for online statements.

Finally, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency recently have proposed rules increasing the amount of capital that the country’s largest banks are required to have in reserve. “This will increase the overall financial stability of the system,” The New York Times quoted Thomas M. Hoenig, vice chairman of the FDIC, as saying.

That last circumstance, however, plays little role in banks’ efforts to attract deposits, most bankers interviewed by Arkansas Business said. “I don’t think that there’s a direct correlation to it,” said Phillip Jett, IberiaBank’s market president for central Arkansas.

“I think that what you’re finding and what you’re seeing is the need to increase households and increase clients,” he said. “That is the main driver behind this promotion. Basically, it is just another hook to gain the attention of a prospective household or client.”

And once that customer is hooked, she’s likely to remain a customer.

“We find in our industry that there’s a strong, strong tendency that if you have your operating checking account with a bank, that’s who you’re going to go to first for your other needs,” Jett said.

Schrage, though, said that banks do want to have more cash available. “By building cash reserves now when interest rates are low, they’ll have that much more cash to capitalize on when interest rates increase in the future,” he said. “Since rates are near zero right now, there’s really only one direction in which they can go.”

Whatever the motivation behind the offers, they’re often successful. “People don’t normally change banks unless they have a real problem, so [a cash offer] gives someone a little incentive to move over,” Ardoin said.

IberiaBank has joined the crowd. Although it doesn’t have such a promotion underway currently, it recently offered $50 for its Freedom Checking, as long as the customer was new to the bank, authorized a direct deposit and followed the other rules.

“We have seen a direct correlation of the amount of the offer to the response rate — the higher the offer, the higher the response rate,” Ardoin said.

Other banks, however, don’t have much use for such offers. Regions Bank, based in Birmingham, Ala., is a regional bank with about 90 locations in Arkansas. It has what spokesman Mel Campbell called a more “holistic” approach.

Roger Weldon, Regions’ consumer banking executive for Arkansas, said Regions seeks to ensure customer loyalty by providing value and the best way to provide value is to help customers improve their financial lives. The bank seeks to evaluate its clients individually, he said, adding that the needs of a 26-year-old customer are far different from those of a 46-year-old.

Regions bankers seek to make “good, solid recommendations that are not transactional recommendations, that are relationship-based,” Weldon said.

And in the end, banking is about relationships, Jett said. Banks that retain customers nurture those ties. “These types of campaigns are only as good as the follow-up that the bankers do,” Jett said.