Overdraft fees continue to be very much top-of-mind with bank and credit union executives. It’s common knowledge that the Consumer Financial Protection Bureau (CFPB) is expected to issue new ruleson overdraft fees in July. These new rules are expected to address the opt-in process for overdraft protection fees, including overdrafts for one-time ATM transactions, overdraft coverage limits, transactions posting order, and more.
Consumer backlash over overdraft fees has been sharp. One consumer advocate who writes for the Times Leader in Pennsylvania characterizes overdraft protection fees as “a deceptive rip-off” in a very heated column. And consumer advocates aren’t the only ones calling overdraft fee policies deceptive. This week American Savings Bank agreed to pay a $2 million settlement in a class action suit filed in the first circuit court of Hawaii. The suit specifically pointed to deceptive practices for overdraft fees charged to debit cards and ATM transactions. The lawsuit claimed that American Savings would order transactions by dollar amount rather than chronology, thereby falsely inflating overdraft fees charged for some accounts. The judgment allows anyone who incurred even one overdraft fee from January 1, 2006 to June 27, 2011 to benefit from the ruling.
Overdraft fees have always been controversial, and profitable. The Wall Street Journal reports that in 2013 overdraft fee revenue hot $31.9 billion, which is down from a high of $37.1 billion in 2009, but the median overdraft fee has hit an all-time high of $30 per transaction. While overdraft protection and overdraft fees are lucrative, they are very unpopular and the pending CFPB ruling will be sure to reduce the amount of overdraft earnings. It’s time to come up with new sources of revenue that don’t alienate customers.
The smart financial institutions are starting to charge for services that appeal to consumers, which means customers are going to be willing to pay for them. A story in the Chicago Tribune this week cites a new SNL Financial report that says one on four mobile banking customers would pay $3 per month to use their bank’s mobile app.
While most mobile banking apps are offered for free, the study shows that users of 75 mobile bank apps are willing to pay. Thirty-three percent of Bank of America users were willing to pay $3 per month, and respondents from Citibank, U.S. Bank, Wells Fargo, Chase, PNC Bank, Capital One, and other leading financial institutions all said they would not be adverse to paying for mobile banking.
Our own research into emerging financial services reveals that consumers are generally willing to pay for convenience and protection. Any bank service that makes customers’ lives easier or safer has value, and customers are willing to pay for services such as credit monitoring, person-to-person transactions, personal couponing, identity theft protection, and related other services. Taken together, these services could prove to be more valuable than overdraft protection and fees, and more appealing to customers.
With all the new emerging financial support services from PayPal to SoFi, banks are no longer the only game in town when it comes to financial services. While there are some customer services where banks excel, there are others that leave customers short, including overdraft protection. Those banks that offer more services as a carrot rather than a stick will see more benefits in both revenue and customer loyalty.
The Latest from ProductBuilder Alert
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