The financial services industry has been keeping close tabs on several developments related to the overdraft protection services institutions offer their account holders. In mid-November, the Federal Reserve issued final rules that prohibit financial institutions from charging fees for paying overdrafts on ATM and one-time debit card transactions unless the consumer “opts in” to overdraft protection for those types of transactions. Before opting in, the consumer must be provided with a notice that explains the institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. The final ruling becomes effective July 1, 2010.
In addition, at press time, two bills were winding their way through Congress. The proposed legislation is intended to make it easier for consumers to avoid overdraft fees, which have increased in frequency mostly due to the soaring popularity of debit cards.
“Overdraft charges are one of the few types of deposit account fees remaining in a world that has largely shifted to free checking and related account services,” says Diane Merrifield, principal of Minneapolis-based MindBridge Marketing LLC. Yet the fact is that the vast majority of consumers rarely incur overdrafts. According to a recent survey conducted by the American Bankers Association, 82 percent of bank customers did not pay an overdraft fee in the previous 12 months.
The outcome of these bills is yet to be determined. But the broader issues raised by the unpopularity of overdraft charges with consumers provide a timely opportunity for financial institutions to reassess and strengthen their relationships with accounts holders, and focus on rebuilding their trust. “It’s about getting back to the basics and doing what’s right for your account holders,” says Merrifield.
According to Sue Schabert, Merrifield’s partner at MindBridge Marketing, this means rolling up your sleeves and nurturing true account holder relationships, from the ground up, so their money is working for them in the best possible way. The net result: Fostering these relationships over the long term naturally will increase loyalty and account profitability.
Is your bank or credit union doing all it can to rebuild consumer trust and confidence? Merrifield and Schabert have devised the following seven-point “back-to-basics” checklist to help you find out.
1Have you evaluated how your institution’s products and services are structured
There is little doubt that the final congressional overdraft legislation will result in financial institutions re-evaluating and restructuring their product offerings. In fact, some institutions are moving quickly in anticipation of these changes. The most significant initial impact will be on free checking. “Being proactive in assessing your institution’s products, services and policies, as well as remaining informed about emerging industry and competitive trends, will help you make the right changes for your account holders,” says Merrifield.
2Have you considered lower-cost alternatives to overdraft protection fees and made sure that account holders know about these options?
In response to the proposed overdraft legislation, many banks and credit unions are reviewing andrevising their policies. For example, they may be implementing less costly and more consumer-friendly alternatives to overdraft fees, which might include the use of prepaid cards (see story on page 12) or the ability to tap into a savings account or credit card account for additional funds. “The fees for these transfers are typically less than those for overdrafts, and this option offers you an opportunity to cross-sell additional products,” says Schabert. “It’s all part of helping account holders manage their money and, thus, strengthening relationships.”
3Have you encouraged account holders to use available financial management tools?
It’s easier than ever for account holders to manage their money and ensure they have an adequate balance to covertheir checking transactions. Balances can be instantly checked online 24/7 via phone, computer, mobile device and ATM. Event-triggered messaging tools can send a text or an e-mail to account holders if their balance drops below a certain level, or when transactions areposted.
Direct deposit can assure account holders of the timely availability of their funds. “These days it's important to educate account holders on ways they can make the most of their money. Ensuring your customers and members are better informed will enhance overall satisfaction and help you build deeper, longer-term and more profitable relationships,” says Merrifield.
4Have you recognized and rewarded account holders who maintain valuable relationshipswith your institution?
Relationship pricing and reward programs can be useful in recognizing customers and members who have been loyal andprofitable for your institution. Account holders also benefit when their relationships help them avoid fees. “Plus, reward programs can offer incentives for account holders to take advantage of services that cost less to deliver, generate revenue and build loyalty,” says Schabert.
5Have you ensured that all staff members are knowledgeable about, and supportive of, your policies and procedures?
Every employee at your institution needs to be on the same page when it comes to understanding your policies and account options, and communicating them in a positive way to account holders and prospects. They need to be able to guide consumers in making well-informed choices about managing their money and avoiding fees. “The more educated your employees are, the better prepared they will be to help account holders select the best accounts for their needs and understand how to manage them wisely,” says Schabert.
6Have you implemented a formal onboarding program?
Onboarding can help improve your cross-sell efforts. A well-structured onboarding program begins with the new-account opening process and continues through the critical first 365 days of the relationship. “Actively engaging new customers and members reinforces the decision they’ve made to do business with you,” says Merrifield. “At the same time, the process encourages new account holders to take advantage of additional services that will help them make the most of their money — and their relationship with you.”
7Have you positioned your bank or credit union as a consumer advocate?
The proposed overdraft legislation provides a wonderful opportunity to educate account holders, prospects and the general community about basic financial management issues. “This is a chance to position your bank or credit union as a community leader and expert,” says Schabert. “It’s a win-win. Consumers learn ways to better manage their money. In turn, your institution can use these forums to help with account acquisition efforts.” Most importantly, institutions should reach out to account holders to make sure they’re informed about account options, policies that may impact them, and ways they can manage their accounts and avoid fees. Merrifield notes that people who frequently incur overdraft fees and finance charges may benefit from such “Account Management 101” tips as remembering to record all debit swipes in a checkbook register, learning to balance a checkbook, keeping track of automatic payments, paying credit cards in full by the due date and contributing regularly to a retirement account. “Often it is high school and college students who abuse debit and credit cards due to lack of experience,” she says. “Collaborating with schools and community groups to teach young people how to better manage their finances might be an activity worth exploring.”
While the proposed congressional legislation may be triggering many of these efforts, at its core the issue is not simply about overdraft fees. Both Merrifield and Schabert emphasize that the bigger picture is about helping consumers be smart about their money and building stronger relationships. “Ultimately,” says Schabert, “this is about building account holders’ trust in their financial institutions.”
For more information on building stronger account holder relationships, contact your Harland Clarke account executive or visit harlandclarke.com/contactus.