By Ray Birch
LAKE FOREST, Ill.—Innovation is needed to help consumers manage overdrafts, according to one expert, who believes one bank’s brand new offering suggests financial institutions are moving in the right direction.
However, much of what PNC claims to be a first with its “Low Cash Mode”overdraft offering is already being done by many financial institutions, including credit unions, asserts Michael Moebs, economist and CEO at Moebs $ervices, who is offering insights into what has been changing in the way of new tools to help consumers manage ODs—and how CUs can compete with PNC’s new product.
As CUToday.info reported, PNC Bank announced what it is calling a “groundbreaking” Low Cash Mode digital offering for its Virtual Wallet customers it said is designed to help avoid overdraft fees, a move it said could save its customers as much as $150 million a year in fees. The bank said it will do so via “unprecedented account transparency and control to manage through low-cash moments or mis-timed payments.”
https://www.cutoday.info/Fresh-Today/PNC-Bank-Intro-s-Low-Cash-Mode-Says-It-Could-Save-Customers-Up-to-150M-in-Overdraft-Fees-Annually
According to PNC, Low Cash Mode—built on patent-pending technology—comes with the Spend account inside of the Virtual Wallet that “gives customers Payment Control, including the power to prioritize by determining whether certain debits (checks and ACH transactions) are processed that otherwise might result in overdrafts, rather than the common industry practice of the bank making the decision. Real-time intelligent alerts let customers know when their balance is low and – if it is negative – Low Cash Mode provides at least 24 hours of ‘extra time,’ and often more, to prevent or address overdrafts before fees are charged.”
Moebs said there are numerous steps credit unions can easily take right now to not only compete with PNC’s new offering but also reposition overdrafts for the modern consumer.
Michael Moebs
Steps to Take
Those steps include:
- Establish low balance limit alerts on consumer checking accounts. “Most FI operating systems can do this now,” Moebs said.
- When the consumer’s low balance limit is breached, automatically send electronic notices to the consumer’s digital wallet, email and mobile phone immediately.
- If the consumer’s balance is negative, offer the ability to automatically access funds from linked deposit accounts or a line of credit first to bring the account positive. “If funds are not available from these sources, then cover the transaction with an overdraft limit if the consumer has opted-in for the service. Always immediately and digitally notify the consumer of overdraft related payment actions,” Moebs said.
- “Since all of this may be happening quickly in the fast-moving payment system, give the consumer an extra day to make a deposit before charging an OD or NSF fee to cover their negative balance,” offered Moebs. “Many banks and credit unions do this now. Huntington Bank in Ohio was one of the first to do this.”
- “Charge the national average/median OD and NSF fee of $30, which is 20% less than PNC. And if you are inclined, cut the price to half of what PNC charges,” said Moebs. “This low-fee approach benefits the consumer and is much more sustainable than charging high fees like PNC, and if done correctly will substantially increase revenue with more volume.”
Giving Credit
Moebs said PNC deserves credit for its new offering.
“The one thing the PNC digital wallet does, which may have not been done before, is allow the consumer to decide which transaction—only paper checks and ACH count here—to pay as an overdraft or return NSF,” said Moebs. “This is quite innovative. However, what about debit cards, ATMs, and other payment types which are already approved, and in some cases approved with overdraft lines? Who is liable if the consumer makes an error when deciding to pay or return a check or ACH transaction?”
Much of what PNC is doing in ODs has already been done by CUs and community banks, according to Moebs.
In introducing the product, Moebs noted PNC Bank President, William Demchak said, “We’re able to shift away from the industry’s widely used overdraft approach, which we believe is unsustainable.”
“At $36, PNC’s price for one OD transaction is not sustainable. Overdrafts are an error and not a penalty,” said Moebs.