Creating a new checking product: a Pennsylvania bank acquires customers by creating an innovative checking account featuring simple and appealing rewards: cash back for everyday banking transactions--plus an annual bonus to encourage loyalty.

• Author: Albro, Walt

BANKS TODAY ARE HUNTING FOR NEW CHECKING ACCOUNT CUSTOMERS. Their motivation is to draw in more low-cost core deposits, thus improving net-interest margin and revenue.

But creating a new product is not easy. For one thing, the product must be so appealing that prospects will abandon their existing bank to use it. Also, the new account cannot drag on the bottom line. At the very least, it should be revenue neutral--but preferably make a profit.

An example of a regional bank that recently introduced a new checking product designed to be good both for customers and the financial institution is Susquehanna Bank (assets: $18 billion), Lititz, Pa. The bank added the product, called Stellar Checking, in March, at the same time it simplified its account lineup, reducing the number of checking account types from six to three.

"Stellar Checking is unusual in that it is simple yet compelling: It rewards customers for everyday bank transactions and encourages them to remain loyal over the long term through an annual reward feature," says Susan Bergen, CFMP, an executive vice president and chief marketing officer at Susquehanna. "There are only a few banks in the country that offer a similar product, but with more conditions and restrictions than what we have."

Impact of Durbin Amendment

Susquehanna has about 260 branches, many concentrated in central and eastern Pennsylvania, with others in New Jersey, Maryland and West Virginia. A number of larger banks compete in the same markets.

Like other regional and large banks, Susquehanna was impacted by the federal Durbin Amendment of 2010, which capped the amount of fees that banks with more than $10 billion in assets could charge in connection with debit card transactions. And, like many other banks, Susquehanna immediately started to review ways to offset the revenue lost as a result of Durbin.

One idea was to revamp the institution's lineup of checking products, creating a new account that would be so exciting and attractive that it would pull in new customers, expanding low-cost core deposits.

Susquehanna began serious product development in mid-2012 and obtained management go-ahead for Stellar Checking by the end of that year.

The bank's approach to new-product development is to employ a multidisciplinary team to brainstorm and evaluate proposals. The team in this case was composed of representatives from the consumer banking, finance, operations, technology, marketing and sales departments. The team...