In the war for deposit growth, upstart digital platforms, splashy rates and the ability to reel in billions of dollars in balances from scratch tend to inspire fear and envy.

But in the competition for retail checking accounts — arguably the cornerstone bank product on which the most profitable customer relationships are built — big incumbent banks have shown that high-profile brands with national reach and enormous technology budgets can provide dominant advantages.

As of Sept. 30, 2019, Bank of America Corp.'s principal bank subsidiary, Bank of America NA, held a remarkable 34.6% of the total amount of consumer interest-bearing transaction balances deposited at U.S. banks with more than $1 billion of assets, according to S&P Global Market Intelligence data. That represents an increase of more than 20 percentage points since the first quarter of 2017.

JPMorgan Chase & Co.'s principal bank subsidiary, JPMorgan Chase Bank NA, led in consumer noninterest-bearing transaction deposits, with a 19.6% share at Sept. 30, 2019, which also represents a dramatic increase of more than five percentage points since the fourth quarter of 2015. Data on deposits held by consumers is not available at the holding company level in regulatory reports. Only banks with more than $1 billion of assets are required to provide the information.

Roughly two-thirds of domestic retail transaction deposits across the industry are interest-bearing, as are the vast majority of BofA's, so its share of total retail transaction deposits has followed a trajectory similar to its performance in the interest-bearing category.

Trends are less pronounced in total domestic transaction deposits, where businesses account for about 70% of those balances, but JPMorgan and BofA have both generally increased their market share since early 2015. At Citigroup Inc.'s principal bank subsidiary, Citibank NA, businesses accounted for a relatively large 86.2% of its domestic transaction deposits at Sept. 30, 2019. It also gained share of total domestic transaction deposits in 2015, and breached the 7% level at the end of 2017.

The share held by the other banks with more than $150 billion in domestic deposits is about flat since 2015, including at Wells Fargo Bank NA, the principal bank subsidiary of the scandal-staggered Wells Fargo & Co. That means the rest of the industry has been losing ground.

Big banks build moats against competitors

The consumer checking dominance of BofA and JPMorgan suggests they have strong defenses against challenges from new digital entrants.

Ron Shevlin, director of research at the consulting firm Cornerstone Advisors, said that surveys he has fielded show that the "Big Four" have a powerful hold on millennials, reflecting the appeal of the largest banks' mobile technology and their extensive networks of physical branches.

The giant banks have been able to "rack up a lot of deposits by virtue of being big and having good mobile tools," Shevlin said in an interview. Customers value "a branch presence because there are problems that always occur," and account holders want to be able to go somewhere in person to have them resolved.

Digital challengers that approach the market in the belief that customers are fundamentally dissatisfied with the major banks are making a mistake, Shevlin argued. "There's no pent up frustration," he said. The digital tools the big incumbents offer are "excellent."

Lane Martin, a partner in the North America banking group at the consulting firm Capco, also underscored the importance of physical branches, even as banks work to lighten their footprints and reduce costs.

"You can't argue with the value of marketing and branding from a branch that you can physically walk into, and interact with and have people be on the other end of your money that are accountable for it," he said in an interview.

Martin also observed that digital platforms have been able to offer high rates because they have traditionally offered a narrow range of products and services that keep overhead low.

"When you start introducing things like bill payment, when you introduce debit cards, things that require much more sophistication from a fraud monitoring perspective, from an infrastructure and servicing perspective, that's where the costs come in," he said.

Still, as challengers add to their offerings, they will have the advantage of starting from leaner, nimbler systems, Martin argued. Big banks, by contrast, face the drag of having to deploy new technology across disparate legacy systems.

"Any bank that has global operations across a lot of customer segments — commercial, private banking and retail — they're going to bear the brunt of the change management that will occur," Martin said. "They still have a business to run."

The biggest incumbents may have the ability to massively outspend competitors, but they need their deep pockets just to modernize, Martin argued. "It's required."

When asked about the fintech threat at an industry conference in December 2019, JPMorgan CFO Jennifer Piepszak said that "only the paranoid survive."

She noted, however, that her company brings "to the table something that is very challenging for fintechs in some cases, which is scale and a lot of capabilities and distribution." JPMorgan Chase has cranked up its technology budget to about $12 billion a year.

Banks target checking accounts as key to profitable customer relationships

Interest expenses for transaction accounts increased faster for Citi, JPMorgan and BofA than for the industry as a whole when the Federal Reserve was raising rates. But the increases include prices for commercial depositors, which banks have said were highly competitive during the tightening cycle, and which they are targeting for aggressive cuts now that benchmark rates have fallen. Data on interest expenses for consumer transaction accounts alone is not available in regulatory reports.

In the third quarter of 2019, the cost of domestic transaction deposits fell by 10 basis points from the previous quarter at BofA, and 4 basis points at JPMorgan Chase, compared to a decline of 2 basis points for the industry as a whole, according to S&P Global Market Intelligence data.

BofA has reported that the rate paid on its entire consumer deposit portfolio was just 11 basis points in the third quarter, and that its total cost of consumer deposits — primarily noninterest expenses — has steadily declined from 1.83% in the third quarter of 2015 to 1.5% in the third quarter of 2019 as it has trimmed overhead by cutting branches and driving customer activity to digital, self-service channels.

The company says it sets rates to achieve deposit growth of about 3% a year, a pace that is faster than economic growth and implies that the bank is adding market share.

There is reason to believe that checking accounts are not as important a relationship tool as they once were, as money has become more mobile and as consumers have become increasingly likely to leave funds in peer-to-peer payment accounts and with discount investment providers.

"Almost everybody still has a checking account," Shevlin said, but they have become "paycheck motels."

Even though big banks have tended to abstain from competing on rates in the retail sphere, they have courted new customers aggressively by offering account-opening bonuses and instituting generous rewards programs.

In an investor presentation in December 2019, BofA Chairman and CEO Brian Moynihan said that massive investments in technology and services have helped the bank transform the makeup of its retail checking business. About 92% of its customers now use their BofA account as their primary account, up from 82% a decade ago, according to numbers he gave. That, in turn, helped drive average balances per consumer checking account up from $3,700 to $7,600 over the same time frame, Moynihan said, and BofA began to increase the number of its checking accounts again "in the last couple years."

"Those checking accounts tend to be newer people, younger people," Moynihan said. With BofA’s tight hold on primary account relationships, "the average balance continues to grow."