IS HIGH YIELD CHECKING GAINING MARKET TRACTION?

By: Michael Perlman

September 30, 2007

The emergence and growthof high-yield savings accounts from institutions such as ING Direct, HSBC Direct, and Emigrant Direct is well documented. These companies have acquired deposits volume by offering high interest rates, often above 5%, and easy to understand online account management processes. However, what if a consumer desires a high-yield deposit account with checking functionality? A few companies have launched high-yield checking products to meet this untapped consumer need by leveraging the cost efficiencies inherent in an online only product offering. We at Compete wanted to find out whether these products have gained traction in the marketplace

We analyzed consumer interest in ING Direct’s “Electric Orange” account, E-Trade’s “Max Rate Checking” account, and Charles Schwab’s “Schwab Bank High-Yield Checking” account by studying online consumer behavior at these companies’ websites. In aggregate, high-yield checking shopper interest, measured as traffic to high-yield checking product specific pages at these sites, grew 72% from January to July 2007. ING Direct’s “Electric Orange” product has generated the most interest amongst these three providers, as it captured 71% of total shopper interest during this time period (see graph, right).

It is not surprising that ING Direct has generated the most interest as its brand is synonymous with online high-yield products and it was first to market in this space. However, what is surprising is the varying degree to which online bankers from particular banks prefer a given high-yield checking provider. As the graph to the left indicates, Citibank online bankers are the most likely to shop for a high-yield checking account at ING Direct, while Wells Fargo online bankers are the least likely.

This shopper analysis provides a preliminary indicator of which high-yield providers are likely to steal checking deposit volume from particular banks’ existing customers. One potential explanation for the difference in shopping behavior amongst customers from each bank is geography. For instance, Wells Fargo’s strong west coast footprint could influence its customers to be more likely than those of other banks to shop at Charles Schwab - a company with west coast origins. Clearly geography is not the only factor that could influence online shopping behavior. Other factors could include targeted marketing partnerships, the product portfolio of a particular bank, or the timing of a specific high-yield provider’s marketing spend. Compete will continue to monitor the dynamics of the emerging high-yield checking market at these institutions as well as at other institutions (e.g. Fidelity, HSBC Direct, etc.) that recently launched a high-yield checking product or might do so in the near future.

Financial Services Indicators