Is Autopay Killing Checking Accounts? Banks’ Response to Consumer Shifts

In recent years, worldwide consumer financial behaviors have undergone significant transformations. In addition to the reduction of safe deposit boxes, is the decline in traditional checking account usage, coinciding with the rise of automatic payments linked to credit cards and other digital payment methods. This shift presents both challenges and opportunities for banking professionals aiming to adapt to evolving customer preferences. 

The Death of the Checkbook 

Historically, checking accounts have been the cornerstone of personal banking, facilitating everyday transactions and bill payments. However, data indicates a downward trend in their usage. The 2023 Federal Reserve report highlighted that 13 percent of adults utilized nonbank check cashing or money orders, a figure unchanged from 2021 but reflecting a three-percentage-point decrease since 2019. This suggests a gradual move away from traditional banking services.  

Moreover, the average household checking account balance has seen fluctuations, according to Money. As of March 2023, balances were only 10–15 percent higher than 2019 levels, a stark contrast to the elevated balances observed during the peak of pandemic-related stimulus payments.  

The Rise of Automatic Credit Card Payments

Concurrently, there’s been a surge in consumers adopting automatic payments via credit cards, a trend noted by PYMNTS. Between 2015 and 2020, autopay usage nearly doubled, with 75 percent of consumers in 2023 using it for recurring expenses like subscriptions and streaming services.  

While autopay offers convenience and reduces the risk of missed payments, it also has potential drawbacks. The Wall Street Journal cites a study that highlighted that borrowers using autopay tend to pay off 8–17 percent less of their monthly credit card balances compared to those making manual payments, potentially leading to increased interest accrual and prolonged debt cycles.  

The Autopay Effect: Implications for Banking Operations

The migration from checking accounts to credit card-based autopay systems carries several implications for banks, as reported in the CFPB Overdraft Fee Report, a 2023 Deloitt Banking Industry Outlook, FDIC’s 2023 National Survey of Unbanked and Underbanked Households, and a CFPB blog post about automatic debits: 

• Revenue Streams: Reduced reliance on checking accounts may lead to decreased fee-based income from services like overdrafts and check processing. 
• Customer Engagement: With fewer touchpoints associated with traditional account activities, banks might find it challenging to maintain strong relationships with their customers. 
• Product Offerings: There’s a growing need to innovate and offer products that align with the digital preferences of modern consumers, such as enhanced mobile banking features and seamless integration with digital wallets. 

Strategies for Banks in the Autopay Era

Both McKinsey & Company and PricewaterhouseCoopers have outlined strategies to combat the uncertainties of the current landscape. Collectively, they advise: 

• Enhancing Digital Services: Investing in user-friendly mobile applications and online platforms can cater to the tech-savvy customer base, ensuring that banking services are accessible and convenient. 
• Promoting Financial Literacy: Educating customers about the potential pitfalls of autopay, such as the risk of accruing debt due to overlooked payments, can foster trust and encourage responsible financial habits. 
• Diversifying Product Portfolios: Developing new financial products that integrate with popular payment apps or offer competitive rewards for credit card usage can attract and retain customers. 
• Leveraging Data Analytics: Utilizing data to understand bank customer behavior and preferences can inform personalized services and targeted marketing efforts. 

Meeting the Banking Needs of Modern Consumers

The decline in checking account usage, coupled with the rise of automatic credit card payments, signifies a transformative period in consumer banking behavior. By proactively adapting to these changes through digital innovation, customer education, and diversified offerings, banking institutions can not only meet the evolving needs of their clients but also position themselves for sustained success in a rapidly changing financial landscape.