Banks Bend Over Backward for Business

Checking-account customers are traditionally reluctant to switch, but banks are fighting hard for their business.

Stuart Machir uses an ATM at a Citibank branch in Washington. He isn't switching banks -- yet. (By Gerald Martineau -- The Washington Post)

Stuart Machir is 26 and in the crosshairs of every major bank in Washington.

They want his money, even though there isn't much of it. Machir estimates that his average daily checking account balance is less than $1,500 -- an amount that even five years ago would have made banks load fees on a customer considered to be a money-loser.

"I'm not exactly a private-wealth client," said Machir, who works for a downtown professional services firm.

But new technology and marketing techniques have made even marginal account-holders profitable and put people like Machir at the center of a hypercompetitive fight to sign up new customers -- particularly young ones -- no matter how skimpy their balances may be. Bank executives used to focus on savings accounts and commercial lending, but they now see consumer checking as a foundation of their business, cheaper than ever to manage and something of a loss leader for loans, investment accounts and the broad supermarket of services that banks can offer since deregulation in the 1990s. As a result, banks have focused advertising dollars, redesigned branches, extended hours, improved service and even brought back old-fashioned product giveaways in hopes of persuading decidedly unwealthy customers to do something they almost never do: switch banks.

In November, Wachovia, which has the dominant market share in the region, introduced online software to switch a customer's entire banking relationship -- including sending letters to employers to move direct deposits -- in 20 minutes or less. Several banks say they will also begin promoting such "switch kits." First Horizon Bank, a Tennessee company that entered Washington this year, will even have bank-branch employees type in the information.

Commerce Bank, a New Jersey institution that entered the local market last summer, is opening 1,000 new checking accounts a month at its three new area branches. Commerce is a big believer in an old tactic: the new-customer gift. The bank blankets neighborhoods around its new branches with direct mail, offering items such as toasters, irons, waffle-makers and golf umbrellas. Its most popular gift is the George Foreman Grill: The bank gave away 800 in its first four months in Washington.

Commerce has also gone old school in another way. While some banks refuse to accept coins, Commerce has put free coin counting machines in its lobbies, where they are available even for non-customers to exchange loose change for paper currency.

Citibank is trying to lure customers with a new rewards program, in which customers rack up points towards items like an iPod or a television set. Other competitors have fought back with advertising.

In the three months ended June 30 -- the period when Commerce began opening branches here -- Chevy Chase Bank, the largest local banking company, spent $1.9 million on local print and broadcast advertising. That was a 1,174 percent increase from the previous year's second quarter, according to tracking firm Video Monitoring Services of America LP. Wachovia, typically the most prolific bank advertiser in Washington, increased its ad spending in the second quarter by 35 percent, to $1.7 million.

Free, no-minimum-balance checking, introduced three years ago, is now the norm, and banking experts who follow the Washington market closely say a variety of so-called nuisance fees -- foreign ATM charges, overdraft fees and the like -- will be the next to disappear.

Just how effective those enticements will be is uncertain. Bank customers are among the most steadfast in the business world, even if they hate their banks, numerous surveys show. While about a quarter of all bank customers typically say they are dissatisfied, the average bank will lose only about 15 percent each year, the vast majority because customers move or die. A 2001 industry survey estimated that only 2 percent of all bank customers nationally switch their accounts for better deals on fees or rates, suggesting that few customers actually shop around.

Yet the unique dynamics of the Washington market are forcing banks to try to buck that trend. With a job base, wages and homeownership rates growing faster than in most other major metropolitan markets, Washington has become one of the steadiest sources of growth for national banks such as Wachovia, Bank of America and SunTrust. In the past five years, retail bank deposits in the Washington area have increased 70 percent to more than $100 billion, according to the Federal Deposit Insurance Corp., compared with a 49 percent increase nationwide during the same period.