Transactions are in transition.
Mandatory opt-in for overdrafts has been added to the mix and many financial institutions are worried about what to do to meet the new Regulation E requirements properly.
To address the challenges of this new amendment, banks should follow these simple steps.
First, recognize that the Regulation E amendment is a better devil than one Congress could create.
Second, prepare. The speed of implementation of mandatory opt-in is going to test the ability of operating systems to meet the June 30, 2010, deadline. So the safety net of manual system procedures needs to be in place and tested by June 30 to reduce the risk of losing overdraft revenue.
The manual system's devil seems far better than the evil of lost revenue.
Third, take a straightforward approach.
Be sure to use the Federal Reserve-designed form A-9 for opt-in approval. It has five required elements, four optional modifications and at least one additional element that should satisfy even the grumpiest curmudgeons opposed to the amendment to Regulation E.
Reduce the price of an overdraft to less than $20. This will satisfy the consumer and will get close to 100% acceptance of the opt-in by all users.
It also may actually produce more revenue, depending on how it is implemented.
Fourth, view overdrafts as a benefit to the consumer and price for that. If you think an overdraft fee is a penalty and price it as one, be prepared for less than 70% of your checking consumers to accept opt-in and a 15%-20% reduction in your fee revenue.
However, if you view overdrafts as a consumer benefit and price it accordingly, then consumer acceptance should exceed 90% and revenue should remain stable.
The goal is developing a Regulation E solution that meets the needs of consumers and the marketplace and retains as much or more of your revenue as possible. It can be done.
G. Michael Moebs is the chief executive of Moebs Services, which specializes in financial institutional cost and pricing information