Time to Re-Engineer Overdraft and Liquidity Services

As the New Year approaches, it is time to define you key objectives and focus for 2015.  And for community and regional banks, the first and most important focus has to be re-engineering overdraft and liquidity services.  For most FIs, such services are a major revenue and profit driver, and a valued service for a segment of customers.  But already revenue is down 21%, and more challenges are looming.

The CFPB has announced it will propose new rules in 2015 that will take effect in 2016.  Even sooner, regulators are targeting overdraft services and revenues for how FIs manage "excessive use," paying and returning items, waivers, and charge offs.  More insidious, non-bank competitors stealing revenue through online liquidity alternatives, ranging from funding a transaction like PayPal Credit (previously BillMeLater) or the new Affirm service from PayPal founders, to the $1 Billion invested in 2014 in online liquidity providers, as shown below. 

                                Source: Tech Crunch

The real problem for FIs is the need to re-think the technology and delivery of both overdrafts and other forms of small dollar credit for consumers and small business in the new digital environment..  “All the activity growing in lending options is the inability of FIs to adopt new technology,” says Al Goldstein of Avant Credit.   It is clearly looks like the CFPB will propose changes like they have done elsewhere, which would be that consumers would be allowed 21 days to clear up an overdraft and the ability to repay any overdraft would be required before extending the service.  FIs can protect and even grow this source of service and revenue if they are willing to change.  Those that cling to old ways complaining about regulator activism will lose revenue both to regulation and non-bank competitors.

FIs need to combine new digital lending technology and their overdraft services to define new approaches to drive revenues both compliant and serving a broader market.  That is exactly what our PaySound^® clients are doing.  So as the New Year approaches, make your resolution to be: “Learn more about PaySound.”