$110B in Deposits, $1.5B in Revenue: Research Shows the Credit-Building Potential of Checking Accounts

Originally published on badcredit.org

Key Takeaways

• A study by Cornerstone Advisors identifies $110 billion of potential deposits should banks infuse credit-building into checking accounts.
• Younger consumers rank credit-building as the most attractive checking account feature.
• Education gaps, regulation, and fintech competition continue to be significant barriers to integrating credit reporting into checking accounts.

Using checking accounts as a credit-building tool could unlock $110 billion in deposits and $1.5 billion in interchange revenue, according to a research report by Cornerstone Advisors.

For banks and credit unions targeting younger consumers with thin credit files, the trend is pushing product design toward payment-rewards checking accounts.

Younger Consumers Demand Credit-Building Accounts

Six of 10 American consumers between the ages of 21 and 44 with subprime or near-prime scores find the ability to build credit to be the single best account offering, according to the report, “Credit Score Management: The $110 Billion Deposit and Payments Magnet.”

“A checking account has never really had the ability to build credit history out of its use,” said Christian Widhalm, CEO of Bloom Credit, which commissioned the report. “Now, through integration, consumers can demonstrate creditworthiness based on the transactions they’ve always been making — without having to take on debt.”

Some players are looking to the future. The largest credit union in the nation, Navy Federal Credit Union, announced in April a partnership with Bloom Credit on a credit-reporting product it characterized as “reimagining checking” using the fintech’s Bloom+ feature. The initiative shows an effort to make building credit an everyday part of banking.

How Credit Reporting Will Rebalance Deposits and Loyalty

Results of the survey emphasize the effect. Among near-prime and subprime respondents:

• 73% would launch a new account if it established credit.
• 79% would make increased usage of a secondary account were it to report credit.
• 68% would transfer direct deposit.
• 70% would have utilized a credit-building product from the bank that declined to grant them a loan.

“When someone graduates from thin-file to creditworthy, they move from debit to entry-level credit cards, and eventually into auto loans and mortgages,” Widhalm said. “That’s the long-term value community banks can’t afford to miss.”

Reporting rent payments — a significant monthly expense — to credit bureaus supports the argument. Just 30% of U.S. rent payments are currently forwarded to the credit bureaus, and reporting could be increased to potentially benefit consumers who pay on time.

“Helping consumers establish and improve their creditworthiness by demonstrating how they handle debt and make payments is an enormous opportunity for banks and credit unions in their markets,” said Ron Shevlin, chief research officer at Cornerstone Advisors.

Banks can also go with a white-label approach to credit-building, retaining customers within their own system rather than fintech apps.

‘Consumers Will Demand It’

Banks need to master the fundamentals first. Navy Federal has shown it’s possible. But on a wider scale, it will require trust and better training. For institutions that are hesitant, Cornerstone’s research warrants a closer look.

“We think this should be part of the standard checking suite,” Widhalm said. “Within five years, every bank and credit union will need to offer it because it’s the right thing to do — and because consumers will demand it.”

Bottom Line

Cornerstone’s report outlines a future course: Using account-linked credit checks could attract younger consumers and underserved populations while building deposits and brand loyalty.

Nearly 100 million Americans don’t have traditional credit, including about 40 million immigrants, and that presents a significant opportunity.

But turning that idea into reality will take more than new technology. It will take training and consistent regulation.