Digital-only banks have lower operational costs than traditional banks, which have both digital and physical branches. These traditional banks often charge customer fees as a way to make up for these expenses.

Recently, banks have upped their fees on branch-based checkings and savings. In fact, a new MoneyRates report shows that only 30.4% checking accounts are still free, down from 31.8% just six months ago. The average monthly maintenance fee for checking accounts is $13.58, amounting to $162.96 per year. That’s up over 10% in five years, according to the survey.

“Deposit growth is crucial for a bank,” Byron Marshall, director at Bai Research told Bank Innovation, “but, lately, because of digital banking, Americans don’t need to change bank accounts when they change location… migration used to be a key driver of deposit growth, but not anymore.  As a result of this, and other factors, it seems that we have reached a peak in checking accounts. Banks need to get creative with how they approach checking accounts and other types of deposits.”

And unlike a decade ago when customers had to change banks out of necessity, Marshall explained, customers today change it based on factors like customer experience and competitive rates.

A recent Bai report, authored by Marshall, shows that 24% of millennials and 20% of Gen-Xers likely shopped for new checking accounts in 2018. That’s a significant number for a bank.

Digital-only banks pose a notable threat to branch-based checking accounts when it comes to competitive rates. Neobanks like BBVA Compass or N26, for instance, are purely digital and do not have large operational costs like rent, staff, or real-estate, all of which come with maintaining physical branches. So, in turn, these banks can leverage their technology not just to provide customers with a seamless digital experience, but also by offering competitive rates on things like checking accounts.

Also Read: BofA Eliminates Free Checking Accounts, Now Charging $12 Fee to Low-Balance Customers

In fact, many of these digital-first banks don’t have any fees. And while many banks — 63.27%, according to the MoneyRates report — offer free online checking accounts, there tends to be a minimum balance. On this front, too, neobanks offer lower minimum deposits. Silicon Valley-based Aspiration, for example, offers $10 minimum, while Bank of America requires its online customers to set a minimum direct deposit of $250 to avoid a $12 fee.  

Read, MoneyRate’s full report, released today, here. 

Join us at Bank Innovation Ignite 2019, March 11-12, at the Hyatt Olive 8 in Seattle. Register here.