AUSTIN, August 23, 2022 – In February, Amplify Credit Union became the first and only full-service financial institution in the country to eliminate all banking fees. This week, the credit union is celebrating its 55th birthday by reflecting on how that decision to create more financial inclusion is not only good for members and the community, but also for the organization’s bottom line.
“When we announced our decision to go fee free, other bank executives looked at us like we were crazy,” Kendall Garrison, CEO of Amplify Credit Union, said. “Initially, they assumed it was just another promotion, but when they realized we really meant it… as in, we still provide all the same services, like overdraft protection and wire transfers, they’re just all now free… their jaws dropped. The most common response was, ‘But how can you make any money?!’”
Six months later, Amplify’s move to align income generation with member value is creating positive financial results. Specifically, the credit union’s membership is growing faster, more account holders are activating debit cards and the volume of deposit charge-offs is shrinking.
“It’s counter-intuitive to think giving up a few million dollars of guaranteed revenue could improve your income, but that was our bet and so far, it’s paying off.”
Fee free banking started as a marketing idea for us, but it’s become a mission.”
—KENDALL GARRISON, CHIEF EXECUTIVE OFFICER
Previously, Amplify charged banking fees similar to most institutions, such as those for overdraft, wire transfers, account maintenance and more. In total, Amplify turned off more than 30 different fees, foregoing over $2 million of annual income that now remains in the pockets of its members. The organization looked to replace that income through growing core deposits and increasing interchange income, two key drivers of profitability for deposit institutions.
“We knew that if we could attract more checking and savings accounts, we’d improve our cost of funds, and that feeds our strongest source of income,” Stacy Armijo, Chief Experience Officer for Amplify said. “Also, interchange income is a fee paid by merchants when their customers swipe a debit or credit card, not a fee paid by our members. So, we knew that if we could put more Amplify debit cards into the hands of more members, we’d earn more income. Most importantly, we’d be earning that income in ways our members value. We think of it as fee for service, not fee for failure.”
Today, Amplify is still the only full-service financial institution in the country to fully eliminate banking fees, and financial results indicate the strategy is working. Specifically, Amplify is outpacing its historical membership growth rate by 44% and members who open a new checking account are 10% more likely to activate a debit card. In addition, new members are holding balances three times greater than the minimum balances projected.
“Many of our financial industry peers assumed the accounts we’d attract through eliminating fees would be low-balance accounts with high charge-offs. That’s not what we’re seeing,” Armijo said. “Besides, the attitude that low-balance accounts are somehow unattractive, and customers must be punished with fees to behave in certain ways, is flat out wrong. That’s exactly what needs to change about banking.”
For decades, bank fees have been positioned as a deterrent for reckless spending, but Amplify’s fee-free data tells another story. Since the launch of the program, charge-offs from overdrafts – which are accounts deemed substantially delinquent and unlikely to be collected – have dropped in four of the five months for which data is available.
“As an industry, we’ve been fooling ourselves into thinking that charging a fee for overdraft protection limits losses,” Armijo said. “Why would we be surprised that adding to an individual’s financial burden when they’re already distressed increases the odds they’ll throw up their hands and walk away? If we really want to improve the financial lives of our members, fees are not the way to do it.”
One reason Amplify feels strongly about that is because of the disproportionate effect of bank fees on people of color and younger consumers. Since eliminating all fees, Amplify has increased its millennial growth rate by 56%, indicating strong resonance with a growing demographic of banking consumers.
“Fee free banking started as a marketing idea for us, but it’s become a mission, and the best way to make your mission enduring for your organization is to show how it’s adding to your bottom line,” Garrison said. “I’m excited to see that happening at Amplify and I hope it inspires others to follow.”
About Amplify Credit Union
Amplify Credit Union offers fee-free banking and award-winning lending throughout the state of Texas. In 1967, the organization was founded as the credit union for IBM employees in Austin. Today, it provides digital-first banking and lending services to 60,000 members, including home loans, checking & savings accounts, commercial lending, and more. In addition, Amplify has been named a Top Workplace in Austin for three years in a row, and this year was named a Top 50 Workplace in the USA. The organization is rooted in its mission to improve the financial lives of its members and uses the proceeds from that to provide a safe place to call home for those without. Join us at www.goamplify.com.