A year ago, President Trump signed an executive order that directed agencies to identify two regulations to cut for every new one they intended to issue. We're 37 days into 2018 and it appears the president is keeping his word: “In our drive to make Washington accountable, we have eliminated more regulations in our first year than any administration in history of our country,” Trump said during his State of the Union speech last week.
Even the most cynical nay-sayer should feel positive about this changing regulatory climate.
We are especially encouraged with regard to the future of automated overdraft programs for several reasons:
- A diminishing role for the Consumer Financial Protection Bureau (CFPB) after Trump appointed new leadership to the agency and the Supreme Court upheld the decision
- A former banker, Joseph Otting, was sworn in as U.S. comptroller of the currency to serve as the leading regulator of national banks
- Approved changes to Dodd-Frank reforms
- Five federal financial regulatory agencies revealed likely changes to overdraft programs that seem rather minor, including revised disclosures, standard posting order and balance calculation methods
We are pleased to announce that Springfield, Ohio-based IH Credit Union has selected BSG Financial Group as its partner in managing its courtesy overdraft service.
According to credit union officials, IH Credit Union ($314 million in assets) selected BSG Financial Group and its CourtesyConnect®/CourtesyLimit™ software—displacing an incumbent third-party vendor it had engaged for 12 years—as a way to streamline overdraft management processes, while continuing to provide the same or better service that members have come to expect from the credit union.
In addition, the credit union sought to improve the methodology of setting overdraft limits in order to better meet members’ short-term liquidity needs. “We had been using a ‘one-size-fits-all’ approach to overdraft limits, but felt we should be more responsive to changes in our members’ financial situations," said Robb White, Chief Executive Officer of IH Credit Union.
With consumers increasingly expecting a seamless lending experience and more non-bank digital lenders entering the market, banks must embrace digital lending technology to remain competitive. However, it must be applied strategically.
As Rob Morgan, Vice President at the American Bankers Association (ABA), wisely pointed out in a recent article in the ABA Banking Journal, “Digital lending isn’t an across-the-board pursuit for banks; it's a strategy surgically applied to specific lending areas.” The article, entitled Three Big Trends in Digital Lending and How to Get In on Them, suggests financial institutions should focus their efforts on those areas of lending that are easiest to digitize—namely, small business lending and personal loans.
The recently-released 2017 U.S. Digital Lending Landscape white paper by S&P Global Market Intelligence projects that digital lenders will originate $62.84 billion in new loans in 2021 across the personal, small and medium enterprise, and student-focused segments. This prediction represents a compound annual growth rate of 16.5%, although SME-focused lenders are projected to grow the fastest over the next five years, with an estimated CAGR of 21.5% through 2021.
With 99.7% of all businesses in the U.S. classified as small businesses (according to the U.S. Small Business Administration), these projections should be encouraging to community and regional banks that are investigating the plausibility of offering digital loans to this market. The numbers indicate that there is no shortage of small businesses looking for funding.
For the seventh consecutive year, The Financial Brand has provided a global survey of financial services executives that outlines their top three retail banking trends and predictions for 2018. Of the organizations that provided their top 3 trends, the highest ranking prediction was that the industry was going to remove friction from the customer journey (61%).
The small business and consumer unsecured loan market is enormous—$1.3 trillion by some estimates. For community and regional banks under $10 billion in assets, however, this market is quickly becoming a missed opportunity. Banks this size have a mere nine percent penetration into the market for small business loans under $100K and only an 11 percent share of the personal loan/credit card market. These paltry numbers are disappointing, especially when you consider institutions of this size used to stake claim to these loans before ceding them to non-bank, online lenders.
It is mind boggling to consider the amount of data available on the Internet. On an average day Internet users conduct more than 60,000 Google searches per second, while billions of people upload data–photos, videos, comments–to Facebook, Twitter, YouTube, Google+, Instagram, Pinterest and LinkedIn.
Since the 2010 Amendment to Regulation E (Reg E), banks that want to offer and charge for overdraft coverage on ATM or one-time debit card transactions have been required to obtain affirmative consent from customers before charging an overdraft fee for extending overdraft coverage for these transactions. Many consumers have realized the benefits of opting into overdraft coverage when using their debit card, including avoiding embarrassment at POS and obtaining goods and services, like gas and groceries, at the time they need them.
However, a large percentage of customers—as many as 80% according to the Consumer Financial Protection Bureau (CFPB)—have not opted in (and/or made a decision about opting in) to their institution’s overdraft coverage for debit card transactions. For safety and soundness purposes, most institutions do not provide an overdraft limit for card channel transactions on accounts without a Reg E opt in decision. This results in a denied transaction whenever a customer attempts to access more than their available balance. It can be very frustrating for a consumer, especially a new customer, to have a POS transaction denied when attempting to use a debit card. The consumer receives no immediate feedback informing them that the transaction was denied due to insufficient funds because they didn’t opt-in to Reg E.