The Globe and Mail | Rob Carrick  | May 2, 2016

We have our first look at how the banks will respond to what could turn out to be the biggest challenge they’ve ever faced to their financial dominance.

Financial technology, known as fintech, is enabling startup companies to challenge the banks in areas such as investment advice, borrowing, mortgages and basic chequing accounts. By one estimate, banks could lose up to 60 per cent of their retail profits to fintech companies in the next 10 years. Curious to see how the banks will defend their lucrative franchise?

The new CIBC Smart Account from Canadian Imperial Bank of Commerce offers a hint. It’s not a tech-based product, although it does integrate a cheque-killing technology called Interac e-Transfer better than most other banks. What makes Smart Account noteworthy, beyond heavy marketing, is that it’s a window into bank strategizing at a time when the fintech threat is intensifying.

Chequing accounts at a bank are typically available in three or four flavours – you have to pick the one that is closest to your needs, and often it’s not an ideal fit in terms of features and fees. CIBC Smart Account works on a pay-for-what-you-use basis, which means it’s flexible and personalized. The account adjusts to you, not vice versa. That is the sort of nimbleness that makes fintech such a threat.

The base cost of the Smart Account is $4.95, which gives you up to a total of 12 withdrawals, transfers, bill payments, debit purchases and such. You pay $1.25 for each transaction above that amount to a limit of $14.95 a month. At that price point, you’ve got unlimited transactions.

CIBC also offers the Everyday Chequing account, which costs $3.90 a month and includes up to 12 transactions, with a charge of $1.25 an additional transaction, with no limit. The PremierService Account, a $28.95-a-month niche product, is designed for people who equate big fees with big service.

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Most banks are similar in having a minimalist account for basic needs at one end of the spectrum and a Mercedes account for high-net-worth clients. It’s the in-between where the chances are highest that you’ll end up paying monthly fees for services you don’t need on a regular or periodic basis.

If you’re travelling and not doing much banking, your fees with Smart Account might fall to the minimum $4.95 for a month. In a month of modest expenses, you might pay a few bucks more. In a heavy spending month, you have the certainty of knowing you’re capped at $14.95.

The fintech reply to this approach is that chequing accounts should have no fees at all. Some online banks and credit unions already do this, but big banks tend to waive fees only if you maintain a minimum balance. For the Smart Account, you need to maintain a $3,000 balance and have a recurring direct deposit or two preauthorized payments a month.

Big banks are actually pulling back from no-strings free banking. The seniors fee waiver is pretty much dead, while some student accounts provide only a limited number of transactions for free.

Anyway, with their expensive-to-run branch networks, banks can’t compete with fintech by cutting fees to zero.

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