It would be difficult to find something more universally hated among banking consumers than overdraft fees.
According to a 2020 UCLA study, about 30 percent of accounts have at least one overdraft per year, and accurately and effectively communicating policies are important because overdrafts cost consumers around $10 billion.
And it’s not just the money, PNC Executive Vice President and Head of Retail Customer Segments and Deposits Bonnie Wikert said. The consumer is often taken by surprise by the overdraft, doesn’t quite understand how it happens and has all their control stripped from them; the banks decide which charges are getting paid and which ones get returned.
“Our research suggests that customers really wanted transparency and account controls,” Wikert said. “And fortunately, today’s technology allows us to do that. What the customer wants is capability and the power to make decisions on payments. And what PNC wants to do is put it really in the hands of the customers versus the banks deciding.”
The solution isn’t going to be the same for everyone, she said. PNC offers products like smart access checking that simply do not allow overdrafting as an option. Once the consumer is about to spend more than they have, the charge will simply be rejected. But the virtual wallet checking lineup comes with something PNC calls low cash mode and does permit overdrafts. That’s because sometimes the customer actually wants or needs that option and is willing to pay the fee to access it.
What PNC’s product does is basically put that choice directly into the customer’s hands, making sure they are aware of the state of their account, where their dangers of overdraft are, how they can avoid them and outlining the full set of consequences they will face, she said.
“We believe that this sets us apart from the industry as a payment control feature,” Wikert said. “We actually reveal the transactions that are causing the customer to overdraw their account and give them the ability to make decisions as to whether or not they want to pay those items, or if they want those items returned. So, we are really revealing that to customers and giving them the control to make the decisions.”
As Wikert said, if consumers decide to return an item, there is no fee. If they decide to have PNC pay items, there is a fee. However, if they cure their account or cure the negative balance position before the extra time window, which is at least 24 hours and often more, the fees waive completely.
Control isn’t simply a nice thing to do for customers, she said. Giving them the toolset to manage their checking accounts and control their overdraft spending has a positive effect. Piloting this program with nearly 20,000 customers that had previously skewed toward overdraft behavior resulted in a 60 percent overdraft decline.
PNC also saw consumers more fully engaged with their financial accounts, evaluating when and how to pay items or return them and working to cure accounts that had overdrawn before being hit with a fee, she said. PNC even saw consumers doing things that were rather unexpected with digital tools offered them. Card control mechanisms to allow consumers to temporarily suspend their credit or debit card in the event it is temporarily lost were being applied by consumers who found their banking accounts low.
“By the end of the month, this will be available to our virtual wallet student customers, which is about 1.1 million accounts,” Wikert said. “I’m sure we’ll gain some more insights as our students start using it and take advantage of it. We’ve already seen some really interesting behaviors in the early application of the tool.”
PNC, for its part, will forgo approximately $125 million to $150 million in fees in 2021, she said. But ultimately, forcing a fee on consumers that is universally hated isn’t good business, nor is it smart business. There are better ways to make money than capitalizing on consumer mistakes, and banners looking to remain relevant to their customers’ futures are better served investing in them than they are sucking fee money from their customer base.
“PNC believes this is the right thing to do for our customers,” Wikert said. “And over time, we expect to achieve growth through increased customer acquisition and retention. Our low cash mode is built on patent-pending technology, but we certainly welcome and encourage other banks to find ways to help customers avoid overdraw fees. And we think it’s the right move for customers and certainly the right direction for the industry.”
Selected by EFXA