In the highly competitive environment of discount brokers, Charles Schwab (NYSE:SCHW) stands out.
Choosing a brokerage
Several years ago, I had to choose a discount broker. With names like TD Ameritrade (NASDAQ:AMTD), E*TRADE (NASDAQ:ETFC), among several others, there were many options to choose from.
Generally speaking, the best online brokerage is the one that best fits the individual investors' needs. For smaller investors, the minimum investment required to open an account is an important factor. For high volume traders, lower commissions per trade is likely an important consideration. Meanwhile, clients with a higher net worth might choose the brokerage with the most attractive wealth management and advisory services.
So while evaluating my options, I came across Charles Schwab.
What struck me did not include any of the reasons mentioned above. I was struck by its recent launch of its online banking service. In addition to having a brokerage account, customers can opt for a Schwab Bank checking account as well.
Schwab's secret weapon
How does it differentiate itself from other online banking accounts?
No ATM fees worldwide. Ever.
That's correct. Schwab will issue a checking account debit card to its account holders, which can be used at any ATM in the world. Planning a trip to Europe? Use the card. Going to 10 countries in one month?
Use the card. No minimum balance. No monthly service fees. No kidding.
The ATM fees are included in the withdrawal, but every penny is refunded at the end of the month.
4 years with no fees
This incentive appealed to me because I have been living in Thailand for the last four years, and ATM fees are nearly unavoidable.
Foreigners can expect to pay approximately $5.75 in addition to the charge a bank usually adds on. In all, every ATM withdrawal equates to about $7.00-$8.00 regardless of the size of the withdrawal.
With the Schwab checking card, I don't have to worry. Even if I only want to withdraw a small amount (let's say 200 baht, or $6.75) I won't have any restrictions. Occasionally, I will travel to nearby Southeast Asian countries, including Malaysia, Singapore, Cambodia, and Vietnam. In four years, I have never had any problems or issues and I have been reimbursed hundreds of dollars.
So why should investors care?
Simply put, the checking account incentives are well-received by its customers. These good reviews create customer loyalty and trust. Satisfied users will likely stick with the company. This is a great incentive for business travelers too who often find themselves away from their home banks. Consumers who have grown weary (and angry) every time they have to pay ATM fees could benefit from this incentive.
Every year, Bankrate releases a checking survey with information regarding ATM fees and free checking accounts nationwide.
As of last September, the average cost to U.S. consumers for getting cash outside of their ATM network was $4.13, a new all-time record. Also, free checking fell for the fourth year in a row, declining from 76% in 2009 to 38% in 2013. However, it is important to note that the percentage is higher if customers meet minimum requirements such as direct deposit and minimum balance.
Another company, Personetics, found that 30% of ATM withdrawals were made from out-of-network ATMs. That's a big number.
The Schwab checking account is a hit and I believe that there is significant room to grow.
As of Q2 2014, the company had 9.3 million active brokerage accounts and 756,000 checking accounts. I would be willing to bet that if customers are satisfied with their brokerage account, there is a good chance that they might eventually consider signing up for the checking account as well. In addition to expanding its services offered to clients, the additional benefits result in more loyalty, higher satisfaction, higher customer retention rates, and potential growing market share in the long-run.
Here is information from Schwab's website:
"The Schwab Bank High Yield Investor Checking account is only available when linked to a Schwab One brokerage account. The two accounts may be opened at the same time. The two accounts will be linked, so you can easily transfer funds between them to meet both your investing and checking needs. While you're under no obligation to use the Schwab One brokerage account, you may find it very convenient. And, you can enjoy the benefits of investing with Schwab brokerage at no additional cost."
One word of caution from the company: "Schwab Bank reserves the right to modify or discontinue the ATM fee rebate at any time." However, since being introduced, it has not undergone any major changes to its current policy.
Schwab is offering a its customers a unique selling proposition that is a total hit.
In a time when bank fees are increasing and free checking is vanishing, its refreshing to see a Schwab doing something different.