Technology & Finance
Reg E -- Screw Customers or Offer Mobile Overdraft Alerts?
In response to new regulations in the US restricting overdraft fees, banks have the choice of trying to preserve the fees or use mobile alerts to allow consumers to move funds and avoid overdraft fees, according to Javelin Strategy & Research report on Reg E.
Almost twice as many overdraft violators – consumers who have paid at least one overdraft charge in the past year – use mobile banking as do consumers overall and they want to be alerted before an overdraft occurs, said the research firm.
“Many consumers see financial regulations as a victory and feel they now have greater say over what fees to pay,” said Mary Monahan, research director. “FIs can transform their image from adversary to partner by being more transparent about the fees they charge and by giving their customers the control they want – such as being able to respond to a mobile alert before incurring an overdraft fee.”
The Reg E and Overdrafts report gives an overview of Reg E and its existing fee structure and covers how banks and credit unions can reposition themselves and revamp their business models to recoup lost fees due to Reg E – and what certain FIs are doing already. It also discusses who overdraft violators are, the behavior of overdraft violators and how they should be targeted, how consumers are impacted and their options post Reg E and how mobile can be used as a solution for both banks and customers.
Selected Key Report Findings – Reg E and Overdrafts
• Mobile banking can play a key role in enabling financial institutions to communicate more effectively with their customers by delivering relevant information and notifications in real time whenever customers want it, wherever they are located and through a lower cost channel.
• The mobile alert that both overdraft violators and all consumers most want is a warning that an overdraft is about to occur.
• Young consumers and the newly banked – consumers who opened their first checking account in the past three months – are the most likely to incur overdraft fees due to their inexperience with banking.
• Consumers cite ‘too many fees’ as the No. 1 reason they leave their financial institution.
“The last thing a bank should do is alienate a new – and especially an inexperienced – customer by automatically imposing a hefty fee when they have overdrafted on a one-time debit card transaction or at their ATM,” said Mark Schwanhausser, senior analyst, multi-channel financial services. “Instead, the bank can send them a mobile alert, which empowers the consumer to choose what action to take to avoid overdrafting such as transferring funds from another account or paying in cash. By working with the consumer, the FI can reap the added benefits of reducing fraud costs, creating future cross-selling opportunities, and building customer loyalty.”
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