LAKE BLUFF, Ill.-The July 1 and Aug. 15 Reg. E deadlines for consumers to opt-in to overdraft protection services are huge marketing opportunities for credit unions, one person is stressing.
That's the outlook of economist Mike Moebs, who is predicting only a small and brief dip in overdraft revenue before an increase. CUs properly positioned could take advantage of NSF fee and courtesy pay revenue above levels they enjoyed in previous years. "I believe in 2011 we will come roaring back and we may even hit $40 billion in overdraft revenue for banks and credit unions," said the Moebs $ervices CEO.
That's above the $35.2 billion in overdraft income Moebs $ervices is predicting for 2010, which is down from the $37.1 billion financials collected in 2009. Moebs is basing his optimistic prediction on what his company learned while working with two credit unions and one bank over the last six years that instituted opt-in programs very similar to what is required by Reg. E. "They wanted their members or customers to know exactly what they were getting, which is why they started the programs," Moebs explained.
What the three financials observed, shared Moebs, is that there is an initial revenue dip from consumers not giving their consent right away. But in three months, the overdraft fees come back. "So if the same thing happens, that looks like December will be the big month," said Moebs, noting that the holiday buying season is when overdraft fees are the highest.
Proper Pricing Is Crucial to Revenue Improvement
Credit unions will eventually improve their overdraft revenue, but only if they properly price their services, insisted Moebs. "Credit unions will feel some pain if they do not price overdraft correctly.
The major thing we learned from our three clients is that if you are above $20, you will not get consent and you will have share drafts go to your competitors."
A huge opportunity for credit unions to gain market share is being handed out by Bank of America and Citibank, who are getting out of the overdraft market, Moebs said. "Bank of America and Citibank are giving credit unions and community banks a huge Christmas present. This is a way to pick up market share like never before."
If credit unions lower overdraft fees-Moebs said $27 is the median price today among financials-revenue can be made up elsewhere. Without disclosing specific details, Moebs said his company worked with the three financial clients who already instituted opt-in to offset a lower fee.
"There are ways where you can lower your overdraft price and do other fee-related items in the checking account and actually make more money than you did before."
Few Institutions Are Lowering Price
But Moebs said very few banks and credit unions are lowering price, pointing to the fact 18% are decreasing pricing.
"That's old tradition, and that will not get them consent and will lose revenue," said Moebs, who noted that 57% are increasing pricing.
The problem, asserted Moebs, is that many financials view overdraft and NSF-related fees as penalties. "That is second-millennium thinking, and you are going to lose money. But if you view overdraft as a benefit and price it accordingly-meaning lowering fees-that is third-millennium thinking and you will not only maintain your revenue, you will increase it."