In case you missed out... listed below are BSG Financial Group's five most popular blog posts of 2016. Loads of people have already read them and we wanted to make sure you did too! Take a look to get "in the know" and feel free to pass them along!
Like many financial institution executives this time of year, we at BSG Financial Group have recently participated in numerous industry trade shows and conferences.
In a two-month period beginning in August, we exhibited at or participated in a plethora of conferences, including those sponsored by the Financial Managers Society (FMS), Association for Financial Technology (AFT), Virginia Association of Community Banks, the Bank CEO Network Conference, Jack Henry Banking... to name a few.
Attending these events is very important to us, as they connect us with customers and potential customers alike. More importantly, they give us an opportunity to learn first-hand the most pressing challenges for financial institutions, while validating and ensuring that we offer the programs and services to effectively address these concerns.
Listed below are three of the top challenges that financial institutions face—as told to us by financial executives at these recent conferences—as well as our responses/solutions:
Have you heard? BSG Financial Group will host a webinar for financial institutions entitled, "Managing Deposit Fees: Price With Precision to Save Time & Increase Income."
The free webinar, which will help banks and credit unions accurately set retail deposit fees to maximize non-interest income, will be offered in two sessions: Tuesday, December 8, 2015 at 11:00 am EST and Thursday, December 10, 2015 at 2:00 pm EST.
The webinar—especially relevant to financial institution marketing, retail, and financial officers—will provide tips and strategies to help financial institutions accurately set retail deposit fees to stay ahead of the competition and maximize non-interest income.
Earlier this year, the Consumer Financial Protection Bureau (CFPB) announced it would push back its rulemaking process tied to overdrafts from July to October. But October has come and gone, and so the wait continues…
In fact, it is widely believed that even if the CFPB had made decisions in October, an effective date on rule-making would be no earlier than mid-2017. So not only does the waiting continue… it could go on for more than a year!
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.