Interview with Huntington Bank CEO Steinour

Fewer banks offer free checking — An annual study by found the number of banks offering it nationally has dropped from 76 percent in 2009 to 38 percent in 2013.

For Huntington, free checking and 24-hour grace for overdraft charges has led to “enormous” customer growth, he said.

Let’s go back to 2009 and lay that groundwork. What is the strategy that has come to fruition since then?

Steinour: “In 2009, there was a lot of stress in the banking industry, in financial services generally. I was new to Huntington.”

“So being new, I had a unique moment to start asking a lot of questions and listening to our colleagues. We did this via town hall meetings, all employee meetings, all colleague meetings, if you will initially.”

“And listening on that first round of visits in our different markets, southern Ohio/Kentucky, for example, our colleagues would tell us what they thought our customers wanted or needed. For example, something silly. It seemed silly at that time. We now have 16 million of them. Our colleagues said our pens are chained to locations and it’s not always convenient for our customers. So free the pens.”

“…Another example was our colleagues said, and we got this in all of our geographies, you know times are tough. We have customers that are getting charged overdrafts and they don’t realize it until the overdraft charge hits. And times are tough, they don’t have the money to pay it. They didn’t realize they were spending more than they had in their account.”

“That sort of feedback, and there was a lot more of it, caused us then to step back and say look, we’re hearing it, let’s listen to it, let’s think about it and strategically, these challenges can also be opportunities. We don’t have to do what everybody else is doing. Let’s vision, if you will, going a different direction.”

“We asked a group of our consumer bankers to come together, go off-site, they had a strategic initiative to step back and start to view the future having heard the voice of the consumer and our colleagues and there was a lot of consumer research done.”

“They came back with a series of ideas and they were good, they weren’t great. It’s not that they didn’t have great ideas, they didn’t think we’d take the great ideas.”

“I remember the meeting when I said, ‘nice, thank you, but not enough. What are things you chose not to pursue, and why?’ And that’s where 24-hour grace came out of it. We had heard that sometimes consumers just make mistakes, sometimes customers make mistakes, they don’t realize it. What if we gave them 24 hours to fix it? No charge.”

“That was very expensive for us. That ultimately cost us $35 million.”

“But when we stepped back and said what’s the right thing? How do we do the right thing? And then we developed a number of things and we took it back out for more consumer research and they loved 24-hour grace. It was a killer idea. It was blown away popular.”

“$35 million was a lot of money to us in 2009 and 2010. When we told our colleagues that the board agreed to let us do this, it was like a standing ovation, wild cheering time. They love it.”

“On something like 24-hour grace, we gave it to everybody, no cost. There’s no gotcha, there’s nothing to it. It’s money out of our pocket, but it’s the right thing.”

You’re losing the money off the fee income, but you’re making the money up in households, you’ve seen double digit growth in households, but is that enough to make up for that?

Steinour: “We think it is, or we wouldn’t do it.”

“The design we’ve taken to our products, and to our approach, consistent with fair play banking, is upfront with whatever we do and bring this customer lens in and recognize that we’ll have over time many more customers and the revenue we’re going to lose in the short term we’ll make up in time.

“In 2009, we had roughly 20,000 net new checking account households. We have that many net new checking households every quarter for the last three years.”

“We’ve enormously accelerated our growth. Why? because people like the concepts of fair play banking, the products of fair play banking, they like the customer service that this company built for many, many years and I think they like what we’re doing in the communities including in Dayton.”

The growth led to record annual profits in 2012.

It was an industry-bucking decision at the time to introduce these products. But at the time, could you have foreseen the low interest rate environment that we’re in?

Steinour: “No we didn’t.”

And it’s interesting because the revenue model is becoming increasingly reliant on fee income. You’ve been making that up so far with the increase in households, but where do you go from here and what other ways are you looking to drive revenues?

“Our strategy was always two part. It was grow our customers and because of fair play and their trust and confidence in us, have them purchase more products and services from us.”

“That’s the revenue equation. More customers and more customers buying more products and services.”

“The beauty of the decisions made in 2009 are they’re as relevant today because of the environment. We didn’t anticipate we’d be in this low rate environment that we’re in today, but it actually has helped us because other banks have been adding fees to their checking products or other requirements, minimum balances, automated transfers.”

“We’ve been able to grow into, again with our share of market, our number of customers, grow into a more challenging operating environment.

“The growth has led us to the record profits, notwithstanding the challenges of the environment.”