By Dr. Dan Geller, Executive Vice President

Every year, Dr. Dan Geller, Market Rates Insight’s chief analyst, provides a prediction of deposit trends for the coming year. We recently posted the first part of this year’s report. What follows is the second in a series of articles with this year’s forecast.

In 2012, it will take more than just financial skills to understand and manage deposit rates and balances, it will require the use of macro economics, behavioral economics and understanding of risk based decision science.

The underlying reason for this transformation in the approach to deposits is the new economic reality since the beginning of the last recession in December of 2007. The last recession had a drastic impact on consumer behavior as a whole, but even more so on how they perceive and use deposits. In this publication, I will outline some of the major trends that have contributed to the new approach to insured deposits, and how these trends are likely to impact deposit rates and balances in 2012.

TRANSFORMATION OF DEPOSITS

Traditionally, deposits were a vehicle for gaining a steady and risk-free return. Therefore, the main criteria for choosing a deposit type was first and foremost the interest rate paid. However, all this changed since the beginning of the last recession in December of 2007, when the purpose of insured deposits changed from return on the money to return of the money. In other words, the assurance that the money deposited
is safe, and that it will not BE adversely impacted by the volatility of the equity market and the economic uncertainty, became the most attractive proposition for many consumers.

This transformation is evident from the elasticity analysis showing that bank deposits are among the most inelastic commodity, even more than gasoline, which is highly inelastic due to its absolute necessity. The latest figures on deposit balances and APY indicate that long-term elasticity of deposits is 0.22 compared to 0.58 for gasoline. The closer the elasticity figure to 0.00, the less sensitive demand is to changes in price, or
APY in the case of deposits. Short term (1 year or less) elasticity for deposits is at par with gasoline, 0.28 and 0.26 respectively (Figure 3).

The reason deposits are more inelastic in the long term than gasoline is because there is no substitution to insured deposits.

Typically, demand is more sensitive to price changes in the log run because over time consumers change their behavior by either reducing consumption or finding a substitution. When gasoline prices go up and stay high for a long time, consumers tend to buy more fuel efficient cars (hybrid or electric), drive less and/or use more public transportation.

However, in the case of deposits, there is no substitution because there is no other way to ensure that the principle amount is 100% safe. All other options, such as equities, mutual funds, bonds and alike, carry some level of risk to the principle.

CONSUMER DECISION PROCESS

Rather, they will intuitively (intuitive decisions are basically recollection of past experiences from memory) make a decision if an APY is within the range of what they remember to be the “average”. In intuitive decision making, the average is considered the default baseline for evaluation. For example, if all you know is that the average height of people living in New York is 5.7”, and Mary lives in New York, how tall is Mary likely to be? Most people will default to the average – 5.7”.

On the other hand, larger amounts of deposits, such as $100K and over, triggers the help of system two for a more analytical approach because the risk factor is much larger. In such cases, many consumers will take the time to do research and compare APY and other features that are offered. However, the comparison of your APY is not so much to the market average, but more to the highest competitor that they can find in their research. This is the reason the APY variance to the market average on jumbo accounts is less important to the decision making process (Figure 4).

Of course, there are always regional variations due to demographic and psychographic differences in the makeup of the population in each market, which makes it even more critical to monitor your APY variance for each of your product and markets on a regular basis.

Under the umbrella of inelasticity of deposits, there are variations in how consumers choose deposits based on two consumer behavior theories:

1) The Theory of Risk-Based Decision Making.
2) The Theory of Cognitive Decision Making.

Consumer decisions on deposits fall under the risk-based decision theory not because there is a risk of losing the deposit (they know it’s insured), but because there is a risk of not gaining enough. For example, if the same CD is available in two different places at 1% APY and 2% APY, the decision carries a risk of not gaining 1%, which is the difference between the two options.

The theory of cognitive decision making states that people have two cognitive processes for decision making. The first is intuitive (aka system one), which is done fast and most often, and the second is analytical (aka system two), which is much slower and requires mental work. Generally speaking, people use system one for most of their daily and ordinary decisions such as what to have for dinner, and they use system two for decisions that require analytical effort such as which mortgage option to choose.

Overall, the lower the risk of the outcome, the more likely are people to use system one (intuitive process) to make a decision. These two behavioral theories play a major role in deposit decision making in the matter described below. Currently, interest rates on deposits are at record low. The national variance between the average APY and the highest APY of a 12 months CD (non jumbo) is about 81 bps. This means that the “risk” factor here amounts to $81 for $10,000. For many people, such low risk (of not gaining) is considered insignificant, and they are not very likely to conduct an extensive analysis because the time and effort required is greater than the risk.

Rather, they will intuitively (intuitive decisions are basically recollection of past experiences from memory) make a decision if an APY is within the range of what they remember to be the “average”. In intuitive decision making, the average is considered the default baseline for evaluation. For example, if all you know is that the average height of people living in New York is 5.7”, and Mary lives in New York, how tall is Mary likely to be? Most people will default to the average – 5.7”.

On the other hand, larger amounts of deposits, such as $100K and over, triggers the help of system two for a more analytical approach because the risk factor is much larger. In such cases, many consumers will take the time to do research and compare APY and other features that are offered. However, the comparison of your APY is not so much to the market average, but more to the highest competitor that they can find in their research. This is the reason the APY variance to the market average on jumbo accounts is less important to the decision making process (Figure 4).

Of course, there are always regional variations due to demographic and psychographic differences
in the makeup of the population in each market, which makes it even more critical to monitor your
APY variance for each of your product and markets on a regular basis.

To be continued…

There has been a lot of controversy in recent weeks with Bank of America’s announcement that they are imposing a $5 monthly fee on ATM transactions. Senator Richard Durbin’s response was to tell depositors to bank elsewhere, which led BofA CEO Brian Moynihan to remind the market that they are in business to make money and they should be allowed to earn a profit. This from the CNNMoney:

Bank of America's CEO defended his bank's new $5 fee on debit cards on Wednesday, saying that customers and shareholders understand the bank has a "right to make a profit."…

Moynihan stopped short of criticizing President Obama who earlier this week said to ABC that banks don't have an "inherent right" to a "certain amount of profit."

But BofA's chief did say banks have an inherent right to make a profit in an interview Wednesday with CNBC's Larry Kudlow at the Washington Ideas Forum, sponsored by the Newseum, the Aspen Institute and the Atlantic magazine.

"I have an inherent duty as a CEO of a publicly owned company to get a return for my shareholders," Moynihan said.

So how are the fees stacking up now to help banks build profits? Here’s the latest roundup from ABC News on checking fees for the 10 largest banks:

Bank of America

• Checking: $25 deposit to open; $8.95 monthly fee unless statements are paperless and deposits/withdrawals are done online or by ATM.
• Debit Card: Included with all checking accounts (no additional fees); $5 debit fee to be rolled out in early 2012, which can be waived under certain circumstances.

2. Wells Fargo

• Checking: $100 deposit to open; $5 monthly fee unless direct deposit or average balance of $1,500.
• Debit Card: Included with all checking accounts (no additional fees); test marketing $3 debit fee in five Western states, possible national rollout.

3. JPMorgan Chase

• Checking: $25 deposit to open; $12 monthly fee unless direct deposit of at least $500, minimum balance of $1,500 or $5,000 average daily balance in linked accounts.
• Debit Card: Included with all checking accounts (no additional fees); test marketing $3 debit fee in Georgia and Wisconsin, possible national rollout.

4. Citigroup

• Checking: $0 to open; $8 monthly fee, waived if account has two of the following: direct deposit, online bill payments, ATM withdrawal, debit card purchase.
• Debit Card: Included with all checking accounts (no additional fees).

5. US Bank

• Checking: $50 to open; $6.95 monthly fee with online statements or $8.95 with paper statements unless direct deposits of at least $500 or average account balance of $1,500.
• Debit Card: Included with all checking accounts (no additional fees).

6. PNC

• Checking: $25 to open; no monthly fee.
• Debit Card: Included with all checking accounts (no additional fees).

7. TD Bank

• Checking: $0 to open; $2.99 monthly fee with online statements or $3.99 monthly fee with paper statements.
• Debit Card: Included with all checking accounts (no additional fees).

8. Capital One

• Checking: $50 to open; $8.95 monthly fee unless $300 minimum daily balance or monthly direct deposit of at least $250.
• Debit Card: Included with all checking accounts (no additional fees).

9. SunTrust

• Checking: $100 to open; $7 monthly fee unless minimum balance of $500 or direct deposit.
• Debit Card: $5 monthly fee for unlimited debit card usage.

10. BB&T

• Checking: $50 to open; $10 monthly fee unless direct deposit, $1,500 average balance or a mortgage with BB&T.
• Debit Card: Included with all checking accounts (no additional fees).

Market Rates Insights tracks bank fees and new banking products as part of our research for banks and credit unions. If you need to get a better understanding of the competitive forces affecting bank products in your market, we can help.

This may seem a little arcane, but how many of you remember the K-Mart Blue Light Special, where a specific item would be put on sale for a limited amount of time to stimulate in-store sales. We have seen a similar phenomenon in banking that we call “back-pocket deals” or “bottom drawer deals,” which are specials that are not advertised but that bankers can offer to customers in the bank at their discretion.

It seems Umpqua has launched a similar initiative, offering new deals in what they call a Happy Money’s Day promotion every Thursday that expire that day. This week, they are offering a $5,000 T Series money market account at 1.05 percent.

With rapid fluctuations in the market as well as consumer confidence, being able to react quickly to consumer demands can be a real competitive advantage. Consider how this kind of banking blue light special works with today’s technology. You can offer banking specials using localized services such as Groupon that expire on a day or hour.

Or consider the possibilities offered by mobile technology. You are walking by a local bank and the bank reaches out to your cell phone and pings you with the latest deposit rate special.

it’s becoming more challenging to keep deposit rates competitive, and smart banks are becoming more aggressive in their marketing strategies, reaching out to customers through multiple channels such as the web and cellular technology, to remind them when they are ready to make a change or make an investment. We are sure to see more banks start promoting their own blue light specials, and how they reach prospective customers will determine who gets the deposits.

Interesting news today that offers yet another challenge to banks and credit unions – Google has issued its own credit card. Today Google announced that they will be offering a new credit card aimed specifically at small business users. With the aid if World Financial Capital Bank, Google has launched the new beta version of its AdWords Business MasterCard.

Unlike a conventional credit card, this card lets business users barter for AdWords to help them ramp up campaigns. As quoted in Bloomberg News:

“The card will allow small and mid-sized businesses to spend on advertising when they need to, such as before a peak selling season, and pay for it when revenue comes in, a Google spokesman says. The card, which carries an 8.99 percent rate and no annual fees, must be used exclusively for Google AdWords purchases. Google says the credit limit will vary by cardholder but declined to be more specific. The company won’t say how many cards it plans to issue.”

This is not exactly a new strategy for Google. They have been offering a direct line of credit to larger advertisers, but this new initiative allows advertisers to purchase ads using Google AdWords at a lower rate than offered by most credit card companies. Offering credit cards directly to advertisers reduces the risk of exposure to advertisers reneging if you extend a direct line of credit. And it’s a huge potential user base – more than a million Google AdWords users.

So think about the potential threat this poses to financial institutions. Consider the implications of a Facebook Visa card or a YouTube credit card. As one blogger at Actiance, a company that secures the use of social networks for financial services, points out,

“Hundreds of millions of people use Google every day to search through many petabytes of the world’s knowledge, in 146 different languages. It goes without saying that Google has become a threat to the bricks and mortar business of our traditional financial services organizations. They’ve built a loyal following (where would we be without Google maps these days?), a dependency ingrained within us (a colleagues 5 years old upon finding that her father couldn’t answer a questions retorted with an exclamation – “What do you mean you don’t know, why don’t you Google it?”) and that loyalty, that dependency is one small step for consumers, one giant leap for Google’s increasing domination.”

It seems as though anyone can challenge financial institutions to attract new customers. Is this trend an anomaly, or will we, indeed, start seeing new credit cards emerge from other quarters as well. Will we start seeing Dell credit cards offering computer points, or Microsoft credit cards for software? What are you doing to promote customer loyalty at your bank or credit union?

According to the final Durbin Rule prepaid cards are not prepaid cards, but actually transaction accounts, which means they are subject to interchange fees. According to two recent stories from American Banker this week, the details surrounding the final version of the Durbin regulations are going to put the squeeze on prepaid cards from vendors like NetSpend and Green Dot. As Andrew Kahr writes in American Banker:

“According to the Fed's release a "prepaid" card is exempt from Durbin ... "only if the card is the only means to access the funds underlying the card." Hence, "...prepaid cards that provide access to the funds underlying the card through check or ACH" (p. 162) will be subject to the Durbin interchange restrictions.

“These electronic transaction accounts compete, avidly and effectively, with the bank accounts that are generally referred to (increasingly incorrectly) as "checking accounts." Namely, these so-called "prepaid cards" seek to serve as the household hub account through which income and expenses flow. The business strategy is to supplant branch-based consumer checking accounts with a much less expensive alternative, also perceived as less risky by many consumers.”

These have been highly profitable products until now, competing effectively with banks as an alternative to conventional checking and charge accounts. Consumers are lulled by instant access to what looks like a credit card, the fact they don’t have to deal with a bank (at least directly), and they don’t have overdraft fees. In actuality, these prepaid cards are linked to banks, since someone has to underwrite them, but as Kahr notes:

“It's always possible to find small or hungry banks willing to domicile the electronic accounts for a small fee, without involvement in marketing or operating risks. You can also expect the "prepaid card" issuers to buy or open banks.”

The customers who gravitate toward prepaid bank cards are often the customers that the banks themselves would like to keep as customers but who choose not to write a lot of checks. With this new ruling, prepaid card companies will be forced to eliminate features or change bank partners to qualify for exemptions from the new caps on debit interchange fees. And for banks to claim an exempt status for prepaid cards, they must allow cardholders to access their funds via check, automated clearing house, wire transfer, or some other means.

Effective October 1, the new caps will reduce the fees that banks earn on debit card purchases to about 24 cents per transaction, down from an average of 44 cents. Across the board, the new interchange caps will reduce the fees that the big banks earn from customers paying by debit card, so banks looking  at the prepaid market will have to weigh the cost of compliance against the potential revenue, and assess the potential drawbacks.

Making money frictionless and moving it easily from point to point has become a key driver of the "new “online economy.” Banks are starting to see their profits erode from Internet upstarts like PayPal, Google, and Groupon, who are eroding their profits, and according to the Wall Street Journal, this week three of the big banks struck back:

“Banks are looking to hold onto their influence over consumers, who are increasingly shunning checks and cash, turning instead to new nonbank technologies to spend their money. The new service from Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. takes aim at the popular PayPal offering. At stake are billions of dollars in credit-card, overdraft and checking fees each year.”

PayPal already has established itself as an alternative bank on the Web and now makes up one-third of eBay’s operating budget. Google announced this week a strategy to make retail payments by waving a Google-powered Android smartphone in front of a reader at the cash register. And apparently retailers such as Macy’s Eagle Outfitters, and Subway have already signed on as early adopters.

The new bank joint venture, which has been christened clearXchange, will allow customers of the three banks to use their smartphone or computer to access their online checking accounts, and move money to other checking accounts at another bank.

According to the Wall Street Journal article, new financial regulations are expected to slow revenue growth, although a move to electronic payments would reduce costs. Cash and checks are expensive to process, and while cash is low-tech, it’s still expensive to transport. What’s more, customers are looking for alternative payment systems, so adopting e-payments is a great way to retain customers.

Banks are testing the waters with free systems, and may ultimately charge consumers for these services, but it’s still up in the air. And these banks also are experimenting with ways to transfer money from one financial institution to another, although the system is complicated by the need for checking account numbers, bank routing numbers, and other details.

E-payments are another way that banks are working to build relationships with customers. If they can attract the new generation of customers who have become accustomed to services like PayPal, then they can offer other, more profitable services, such as credit cards and mortgages.

How is social media having a substantive impact on banking? It provides direct access to customers in a number of ways that can improve customer service, and create a degree of intimacy with customers that they haven’t had before. With customers more reluctant to venture to their local bank branch and instead turning to the web and their smartphone to do their banking, banks are finding social media outlets are a good way to approach customer interaction in a positive way, without relying on the in-branch experience.

Oddly enough, however, most banks are still reluctant to embrace social media. According to a recent report by Ovum, two-thirds of the world’s retail banks have no plans to use social media. Currently only 6 percent of retail banks deal with customer questions, and only 1 percent plan to add social media customer support in the next year. And 14 percent are using social media for marketing, while another 12 percent plan to add a social media marketing plan by the end of 2012.

Those banks not planning to embrace social media will lose competitive ground. According to Ovum analyst Martha Bennett:

“We feel that this attitude from retail banks towards social media is a major issue in an era of aggressive competition. The banks without a social media strategy are being shortsighted and are placing themselves in a dangerous and vulnerable position compared to competitors who have realized that social media can and must play an intrinsic role in their business.”

There are any number of ways that banks can leverage social media to interact directly with customers. Here are four that we are already seeing:

1. Twitter for support. Bank of America (@BofA_Help) and Wells Fargo (@Ask_WellsFargo) are just two of the banks using Twitter to help customers with quick responses to questions. If a customer has a question about checking, savings, or online banking, they can post a tweet and get a quick response. Chase and other banks are tweeting as well, including information about special rates, loans, and other information for customers.
   
2. Market and rate information online. Financial news is everywhere. Twitter feeds are being maintained by the Walls Street Journal (@WSJPersFinance), Yahoo! (@YahooFinance), Associated Press (@APPersonalFin ), and other news organizations. And companies like ours blog about rate information and post insights to Twitter and Facebook. There is a wealth of banking information available if you know where to look.
   
3. Providing a customer face on Facebook. Facebook is a great place to keep customers up to date on community affairs, banking specials, and other activities. It also provides an interesting extension to customer support. Consider what would happen if your banker were reviewing loan options while checking out your Facebook page: “I see you have a child in college. Have you considered…..” or “We have a new credit card that offers travel miles that might be useful for visiting your college student.” (Something to ponder when you check your privacy settings.)

Despite having to navigate new FINRA regulations and other concerns about data leakage and losing control of your online brand (see the Bank of America Sucks page on Facebook), the benefits of joining the social media conversation to connect with customers and build loyalty far outweigh the risks. As  Ovum analyst Bennett says in her report:

“Consumers are not averse to receiving promotional messages via social media, or using it for customer service enquiries so a massive opportunity to rebuild the confidence in the sector that is so desperately needed is being ignored.”

To help you keep track of the latest in banking social media strategies, Market Rates Insight has added a new feature to our Product Builder database in MyRI, our Web rate research portal. We have been tracking various social media campaigns for banks and credit unions as part of ProductBuilder Alert, so MyRI subscribers can search for social media programs to see how their competitors are leveraging Facebook, Twitter, LinkedIn, and YouTube. You also can track trends in social media marketing by signing up for our free ProductBuilder Alert, which is issued at the start of each week.

We have been writing a lot about the advent of e-commerce and how mobile banking is removing barriers to moving money for transactions. There was a thought-provoking piece posted by J.J. Hornblass this week on Bank Innovation about “The Dark Side of Emerging Payments.” While the advent of electronic purchases and electronic funds transfer is opening up new commerce models, it also is creating new threats we need to consider. As Hornblass notes:

“Let's try an exercise. Reach into your wallet or purse and pull out a dollar. Now go to your favorite online shopping site using your desktop or mobile phone and pick something to buy -- the baseball season is still young, so I'll choose a pack of baseball cards for my son. When you get to the checkout, try to pay with your dollar bill.

“Unless you can jam the dollar into a USB port, that bill can’t buy you a peanut online.

“And therein resides the great revolution in banking in this nation today. That physical dollar in your hand is becoming less useful as more purchases are made online or with a mobile device. By 2015, e-commerce and m-commerce could collectively account for 20% of the $8 trillion of global sales.”

So $1.6 trillion will flow through electronic commerce by 2015. That’s virtual dollars powered by alternative payment strategies like PayPal, Facebook credits, etc. Handling those transactions will be private, for-profit companies like eBay, Verizon, MasterCard, Visa, and American Express. Digital dollars will flow from virtual wallets via web browsers and mobile phones, essentially printing electronic cash without the benefit of the U.S. Treasury.

Let’s consider the implications of this. First, consider the potential risk to consumers. As more transactions move online through electronic channels, it increases the potential for fraud and theft. If you start using your cellular phone for mobile payments, consider what happens if you lose your phone. The  consequences could be more disastrous than just losing your wallet. Or what happens if your virtual bank account is hacked by some unscrupulous crook? Most credit card companies and banks limit liability in the event of fraud, but can we count on virtual bill payers to do the same thing?

Also consider the larger impact on the economic structure. As Hornblass notes, there are number of companies vying to become the Digital U.S. Mint. Think about that. What happens it all digital financial transactions are managed by a for-profit business entity. Suddenly we are looking at taking the U.S. Treasury out of the equation, limiting the effectiveness of the Federal Reserve, and putting fiscal policy in the hands of private enterprise.

The trend has already started. PayPal is being used more and more for business and consumer transactions. Facebook is mandating that sellers on their system use Facebook credits as currency, with Facebook collecting $0.13 for every credit spent – a 13% tax on the right to buy stuff using alternate currency.

Okay, the real dollars behind the e-dollars are still managed by the Federal Reserve, and electronic transactions are linked to bank accounts and credit cards that ultimately pay in real dollars. However, consider that these alternative payment systems are not regulated, no licensing fee is required, and they can set whatever terms they choose. If consumers want to use the system, like Facebook, they have to play by the rules, including using Facebook credits. As Hornblass states it, “The fact is virtual currency will create a casino of currencies with various valuations. And that makes the situation ripe for consumer abuse.”

So should the U.S. government surrender its right to print legal tender by leaving virtual dollars unregulated? What are the potential consequences of letting private enterprise compete with the Treasury for the right to produce money? Do we need to start worrying about digital counterfeiting? Or more importantly, do we need to worry about a digital currency provider going out of business and taking consumers down with them (a worry we don’t have with the U.S. Treasury)?

This is a huge issue that the government has largely overlooked to date. Hornblass recommends the U.S. government taking ownership of digital currency, but maybe there is another approach. How do you balance the risks of privatized currency against the rewards of ecommerce and the innovation that goes along with it?

There was an interesting article posted on BankInnovation.net this week about the challenges social media poses to  financial institutions. New regulations from the SEC, FINRA, and the FSA in the United Kingdom are classifying Facebook, LinkedIn, and Twitter exchanges as public information that needs to be archived and “discoverable” in the event of an audit. Facebook posts are being classified as advertising and LinkedIn recommendations as endorsements, which means they fall under regulatory scrutiny. After all, you don’t want your broker tweeting stock tips. But this poses new challenges to financial institutions who are struggling to keep up with customer communications. As a recent report from Mercator Advisory Group notes:

“Financial firms that wish to excel at CRM must establish a presence and voice in most of the same online communities where their customers spend time. Increasingly, that means participating in social media of many types.”

In related news, a recent customer satisfaction survey conducted by MyCUsurvey reveals that credit unions are not attracting younger members. Part of that has to be due to the way that Generation Y and Generation Z like to interact with vendors.  They live online, talking to their friends by text and on Facebook, and transacting their business on the web. Where banks are more sophisticated in their online banking strategies, credit unions don’t typically have the same resources. So even though banks and credit unions are struggling to harness social media as new channels to communicate with customers, it has to be part of a total online experience. Tweets need to turn into transactions with a click of a mouse or a touch of a smartphone.

So how are banks and credit unions addressing the challenges of tapping into social media without violating the rules? It’s a combination of common sense, proper oversight, and technology. Where financial institutions used to block online conversations altogether, they are now struggling to implement safe practices. Some are providing restricted access, allowing select individuals access to social media from IT-controlled computers to try to minimize missteps. Smarter institutions are adopting “best practice” guidelines with severe penalties for failure to follow the rules, such as termination for tweeting out of turn. And chief security officers and chief compliance officers are relying on technology to enforce the rules.

Vendors like Socialware and Actiance are providing technology platforms (both on-premise and cloud computing based) that give banks the ability to monitor, moderate, and archive online conversations as part of regulatory compliance. Granted, this imposes Big Brother restrictions on financial workers’ online activities, but the consequences of violation can be severe. FINRA levied $4 million in fines and initiated 34 disciplinary actions in 2011 for electronic communications violations.

So while social media poses a potential risk to banks and credit unions, the savvy institutions know they have to step up their online game to meet the demands of their customers. The rewards will far outweigh the risks, especially if they can be sure they abide by the regulatory rules.

Everyone is talking about the new fees banks are imposing on various accounts by banks. Free checking is no longer free, unless you pay attention to the new rules. Today, Chase imposed its new fees on free checking (isn’t that an oxymoron?) so depositors need to pay closer attention in order to avoid unwanted fees, and what Chase has started may be a model for other banks.

Chase is consolidating accounts that belonged to Washington Mutual and Chase/Bank One customers so the former Chase Basic Checking, Chase Free Extra, and Chase Free Classic checking accounts are now Chase Total Checking. To waive the monthly fee, customers must:

• Make one direct deposit of $500 or more (multiple deposits totaling $500 don't count), or
• Maintain a minimum daily balance of $1,500 in your checking account, or
• Maintain an average of $5,000 in deposit and/or investment accounts linked to checking, or
• Pay $25 or more in qualifying account fees (not including the monthly fee).

Also starting today, all customers with Chase Checking accounts will be grandfathered in as Chase Checking, which requires one of the following to waive monthly fees:

• One direct deposit transaction of $500 or more, or
• Five non-pin debit card purchases per billing cycle (i.e. using your debit card as a credit card).

To avoid the fees, customers can transfer money from an online savings or PayPal account, since the Chase computer system considers direct deposits as ACH credits. Consumers can avoid fees by moving $500 into their checking account to get the deposit credit, and then moving the account back to its original account. Or customers can convert their checking to the new Chase Checking account and start using their debit card to make credit card purchases to avoid fees.

Some of the same rules are being applied to business accounts as well as personal accounts.

We’ll have to see if other banks start follow the Chase model to start generating revenue from checking fees.