There has been a plethora of news stories lately about the intentions of the Consumer Financial Protection Agency (CFPB) to roll back banking regulations, but this one from American Banker is a must-read: "From overdraft to HMDA, rulemaking has new look at Mulvaney’s CFPB. The article explains that acting CFPB director Mick Mulvaney has "overhauled the agency’s spring agenda, dropping several long-time goals of his predecessor, including a rule on overdraft programs."
While reading the latest installment of the Temenos Group blog, the old advertising line, "When E.F. Hutton talks, people listen," came to mind. Temenos is one of the largest producers of software for banking and finance, with over 2,000 clients across the globe, including 41 of the top 50 banks. The company, which spends 20% of its sales annually on R&D, is well-respected for its deep industry knowledge that helps customers stay ahead of a changing marketplace. When Temenos comments on an industry trend, people tend to listen. Or they should.
What the company had to say about courtesy overdraft programs may cause your financial institution to re-evaluate the solution you currently offer... or make you scramble to get one in place.
In a nutshell, Temenos Chief Compliance Advisor, Blair Rugh, stated emphatically in the blog post:
"If you do not oﬀer a courtesy overdraft program, I suggest you reconsider your decision.
Maybe your initial decision was correct for your institution at the time it was made, but possibly now that the dust has settled and the issues are better deﬁned a diﬀerent decision would be more appropriate."
Right on the heels of our latest product release, I am pleased to unveil the addition of another revenue-generating solution for financial institutions: PaySound®—the online checking account that does not allow overdrafts.
PaySound combines a full-service, mobile-ready checking account with an optional line of credit (from $500 to $5,000) for those of your account holders who do not want to incur even a single overdraft charge. These account holders may have opted out of your discretionary overdraft program or they use alternative sources of short-term funding.
For whatever reason, they do not want their financial institution to allow them to spend more than they have in their accounts; and recent research shows that many of them are willing to pay for the certainty of no overdraft fees.
I am pleased to announce that our company has added MinuteLender™ and Business MinuteLender™—online lending platforms for consumers and small businesses, respectively—to our suite of revenue-enhancement solutions for financial institutions.
Using the MinuteLender technology platform—under your financial institution's brand and control—account holders are able to get approval and account set up of small dollar, unsecured loans in just minutes. The entire loan application process can be accessed and completed on a computer or mobile phone, vastly improving the lending experience.
So, you're waiting for the CFPB to decide about overdrafts?
And why is that?
- Is it because you are completely confident you are operating an up-to-date and properly managed overdraft program?
- Or perhaps you are positive your program is compliant?
- Or maybe you have no doubt that your current program is properly serving your accountholders (whose accounts generate a large percentage of your non-interest income)?
If you cannot answer a resounding 'YES' to each of these questions, NOW is the time to ensure your overdraft program is optimized to handle to whatever the CFPB hands down. The fact is, there have been significant changes in overdraft management since most financial institutions implemented or even last reviewed their overdraft programs. Today's solutions—and providers—far exceed yesterday's options.
We can think of no better day than Martin Luther King, Jr. Day to reflect on equality. And while many people this week ponder equality in terms of race, religion or even sexual orientation, we think it also applies to the banking world—specifically to equality in overdraft management.
I recently saw that Strunk, LLC announced it had launched a hosted overdraft solution. The press release explained the benefits of hosted solutions, stating that financial institution clients no longer would have to worry about installing, upgrading or supporting its overdraft management system. This truly is wonderful, as it clearly is a superior method of delivery. Realizing that today’s competitive marketplace and tougher regulatory environment requires a more robust solution, this is a giant step forward.
As I thought of all the benefits a hosted solution has to offer, I realized it has been almost 10 years since BSG Financial Group introduced its cloud-based overdraft management program, CourtesyConnect/CourtesyLimit™. And what a difference it made for our bank and credit union clients: implementations became much easier; upgrades a no-brainer; and our clients no longer shouldered the burden of technical support.
When I think about the evolution of CourtesyConnect®/CourtesyLimit™, I remember that it was a simple, logical progression, having been a long-time provider of the robust overdraft software solution, OverdraftHonor®. We were pioneers when we introduced that software in the 1990s, when many overdraft management providers preached that overdraft software was not necessary or they offered only rudimentary solutions. Our OverdraftHonor® quickly became the “Gold Standard” in the industry, providing unparalleled profitability, guided by our “Responsible Approach” to account holder management and compliance.
So it was in 2005--when other providers seemed to be hunkered down, believing the industry was very mature and showing little if any growth--that we actually invested more in our solution.
Why did we do it? Because it was the right thing to do for our clients. As better tools and ideas have become available, BSG Financial Group has always provided them to its clients. Now enjoying our Fourth Generation of an overdraft management system, we look forward to continuing our leadership position.
Just think, a lot happens in 10 years. Ten years ago you were probably renting DVDs at Blockbuster; wanting a flip-phone and actively managing the amount of cell minutes you used. You may have just tried the Atkins diet; heard the word "metrosexual" for the first time; watched Janet Jackson's wardrobe malfunction; or just seen Barack Obama on TV for the first time. Yes, a lot changes over 10 years.
I'm truly happy and feel extremely proud that BSG Financial Group has always been an early adopter, helping our clients take advantage of new innovations in the marketplace. I love that we were the first provider in the industry to offer a cloud-based overdraft system. It's always nice to be a leader.
Speaking of which, are you taking advantage of all our current enhancements, while enjoying what we pride ourselves on, the "Responsible Approach"? In addition to providing dynamic overdraft limits that protect both you and your account holders, our debit card-focused (ATM/point-of-sale) overdraft management program is designed to help your institution and your account holders get the level of service they desire. This strategy continues to grow in importance, as consumers’ preferred method of payment continues to change to electronic. If you're not sure of what I'm talking about or have interest in learning more, just reach out to BSG Financial Group. We'll be glad to make sure you get what you need.
We offer a FREE OVERDRAFT PROGRAM ANALYSIS whether you currently have a program or not. After you fill out the simple online form, we can let you know the most compliant and profitable way to offer this service to your customers, or introduce strategies to enhance the program you already have.
In last week’s article entitled, “Falling overdraft takes a bite out of banks’ bottom line," PYMNTS.com cited a report by Moebs Services, Inc., an economic-research firm in Lake Forest, Ill, that stated financial institutions garnered around $30.6 billion in overdraft fees this year, down 4% from 2014--the biggest decline since 2011. The article quoted PNC Financial Services Group Inc. Chief Executive William Demchak who spoke at a May conference, where he apparently said, “At the end of the day, these people are our customers and we’re treating them with a got-you product.”
Since I wasn’t at the conference and I haven’t spoken directly with Mr. Demchak, I don’t want to attempt to explain what he meant. However, his words sound strikingly similar to those of so many uninformed consumer activists who suggest that consumers are best served when a financial institution returns insufficient funds (NSF) checks in lieu of paying them.
Unfortunately, this contingency doesn’t seem to completely understand the entire payment transaction. They tend to overlook the fact that regardless of whether a financial institution pays or returns a bounced check, there is going to be an NSF fee. If the consumer is going to pay its financial institution roughly $30.00 in excess of the check’s collected balance anyway, why would the consumer also want to pay the payee, who will likely charge an additional returned check fee? In general, consumers appreciate having their financial institution honor their checks even when they do not have sufficient funds, so that they pay only one NSF fee.
So, it’s a ‘got-you product’? On the contrary, it is a service that most consumers appreciate, often thanking their institution for honoring the check. Not only does paying the NSF item eliminate the additional returned check fee for the consumer, it also reduces the embarrassment and headaches returned checks can cause the maker.
So you ask, ‘Why then are overdraft fees falling at banks? Isn’t this evidence that fewer consumers want the service?’ Possibly, but not necessarily so.
Let’s look at several of the causes. First, there are a number of banks that have altered or discontinued their overdraft service, creating a reduction in overdraft income. Secondly, with the popularity of smart phones and internet banking, consumers can easily keep track of their account balances. However, the most significant driver is the continuing shift from checks to other forms of payment by consumers. Today, checks account for only approximately 23% of transactional items, a drastic reduction from past years and one that continues to gain momentum.
I would propose that overdrafts are NOT a ‘got-you’ product, but a much appreciated and enjoyed service that is often available for short-term liquidity needs. And with the rise in electronic forms of payment, customer-focused financial institutions should consider offering overdraft privileges not only for paper items, but on electronic transactions too. First, however, they need to identify 1) which customers use payments other than checks; 2) if they are currently eligible for overdraft coverage due to Reg E.; and if not, 3) why they are not eligible (i.e., lack of response or opt-out). When asked, customers will generally tell you they did not respond to opt-in efforts by the financial institution because they never saw the mailing or they did not understand it.
Here is your financial institution’s opportunity to distinguish yourself by offering superior customer service. Simply change with the times. If your customers prefer utilizing ATM or debit cards, provide them the same overdraft coverage you provide on their checks. All you need to do is find a service provider that provides an up-to-date, compliant overdraft solution with a proven debit denial program.
I call that turning a “got you” product into a “help-you” product.