When eliminating account maintenance fees becomes a technological problem

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Amplify the credit unionThe offer to rid deposit accounts of all fees began as a marketing idea.

The credit union commissioned research in the fall of 2019 that suggested excessively high bank fees were the deciding factor in motivating customers to switch from one financial institution to another. The credit union in Austin, Texas, wanted to attract more core deposits and lower the cost of its funds.

But before it could welcome what it hoped would be an influx of new customers, Amplify had to spruce up its online account opening and funding process.

The story with many financial institutions that have eliminated or reduced Overdraft fees are how they will compensate for lost income.

Instead, its two-year journey to eradicate all bank fees — not just overdraft fees — is a technical endeavor as well as a marketing push, and meant sacrificing some of the cachet of being the first on the market to bring big digital changes for new and existing members.

In the fall of 2020, Amplify offered free in its 2021 business plan. To the best of the company’s knowledge, it is the first traditional financial institution (excluding challenger banks) that has eliminated all banking fees, including those for maintaining personal and business accounts, off-network ATM transactions, wire transfers and overdrafts. Business checks, for example, used to cost $10 per month if the balance fell below $5,000, while overdrafts and insufficient funds incur a $30 fee. Previously there were three checking accounts, two of which carried fees.

“We could have disabled fees in our core banking system quite easily and launched free much sooner, and we were tempted to do so,” said Stacy Armijo, Head of Customer Experience at Amplify Credit Union. “We wanted the first mover advantage and saw the noise increase around the fees, so with each passing month we knew the unique marketing appeal would diminish. However, we decided that to do this in a sustainable and focusing on quality was more important to us than winning what could have been a bigger marketing touch.

David Schiff, head of retail and consumer banking at West Monroe, says Amplify’s holistic perspective may have slowed the process, but could speed up returns.

“Banks are recognizing that they need to be more aggressive to really grow,” he said. “If you want to make it a proactive change instead of a reactive change answer to a competitor or to a regulation, it is more complex. Making a fundamental change takes effort the first time, but then you are ready to respond to market changes in the future.

Armijo said Amplify sees itself as a digital first credit union. It has five locations in the Austin area, but only two, the drive-thru locations, have been open during the pandemic, leaving in-person service very limited.

“What we couldn’t do was excite people and then compel them to go to a physical location,” Armijo said.

Amplify didn’t want new customers attracted by the free proposition to encounter an outdated online account opening experience, so it improved the process – while retaining its existing provider, MeridianLink – in two main ways.

On the one hand, it simplified the application by making the language more user-friendly; adapt questions to new or existing members; add a checklist of items needed to complete the process, such as identification; and dropping questions that collected information the company didn’t need, such as length of employment. Second, it overlapped with LexisNexis’ risk mitigation services so the process could go more smoothly. Previously, Amplify relied heavily on its employees manually performing reviews in the background.

Another improvement Amplify wanted to make for new customers was to offer the ability to verify accounts using Plaid’s instant authentication system, rather than relying solely on micro-deposits, which could take two to three days.

“It’s an awkward process and it’s not the first impression we want to give to a new member that we’d like to serve primarily online,” Armijo said.

This is another example where Amplify has decided to take it slow. “We have a philosophy of not treating future members any better than current members,” Armijo said. Implementing Plaid’s Instant Authentication in the new account sign-up flow would have been fairly straightforward as it only required coordination between a few vendors. But Amplify wanted to replicate the experience for all members who used online banking, and integrating into more provider schedules took time.

Amplify has also changed the way it thinks around limits with this redesign.

“We’ve long been frustrated that the technology behind services like mobile check deposit and external transfers in online banking didn’t allow for more personalization,” Armijo said. Instead of dictating flat amounts that apply to the entire membership base for mobile check deposit and external transfers, Amplify now sets these limits based on individual behavior, taking into account combined balances, monthly deposits and more.

Amplify proclaimed its official launch on February 22, 2022 as its “no charge day”, but had quietly disabled charges in the previous quarter. The company has also been careful in the past year not to introduce any new charges – for example, when it changed providers for statements.

The real marketing push started in March. Amplify has combined high and low tech methods, including digital ads, billboards, and event sponsorships where someone from Amplify can communicate that the credit union has waived all bank charges, not only overdraft fees. He changed the messaging to be more explicit on this point.

“The way I put it to people is that it’s now impossible for any depositor of any balance with any behavior to incur fees of any kind,” Armijo said.

During the period from February 2 to June 30, Amplify found that potential members were almost twice as likely to initiate an application than before the free launch. Aside from a 10-day post-launch period when requests spiked and approvals plummeted, approval rates each month are 25-35% higher than pre-launch. New accounts hold average balances three times the target of at least $5,000. At the same time, in three of the full four months since the launch of free, overdraft charges are lower than in the corresponding month in 2021.

Armijo points to another motivation for going free: the knowledge that a very small percentage of members accounted for the lion’s share of overdraft fees, racking up hundreds or thousands of dollars in a month.

“It galvanized us when the going got tough,” she said. “Our CEO said, ‘It’s a one-way door. Are you sure you want to walk through it?’ are wrong and start charging fees again.

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