800-809-2307
Four Letters. Infinite Potential.

Value & Volume as a Business Model Offers the Best Results

By Richard Miller
Executive Vice President

A low-volume, upper-price business model may work well for realtors of million-dollar homes, but if your bank or credit union is considering implementing an overdraft protection program—or adapting an existing one—choosing a model that includes a broad pool of prospects and a reasonable rate can have a greater impact to income results. Wide reach can allow consumers’ costs to remain consistent, with participation driving income and consumer satisfaction.

Conversely, hoping that a program can produce sufficient income when arbitrary or dynamic prices are imposed on a smaller pool of account holders may instead create attrition and a sustained cycle of price hikes to offset declining volume.

In Econ 101, we learned about the Law of Substitution, where consumers flee rising prices by reducing consumption or seeking cheaper substitutes.  The following are traditional consumer reactions to price uncertainty or periodic escalations:

  • Consumers responded to rising gasoline prices by curbing their miles driven, and then sparked demand for mileage-friendly cars, including today’s hybrid and electric-powered models.
  • Escalating newspaper prices have led many readers to reduce or abandon the medium, cutting revenue per subscriber by 25%-100%.
  • Similarly, cable TV providers’ rate hikes often trigger backlash, churn or price capitulation.
Given these well-documented examples, a similar fate might be anticipated for a business model that expects income from a combination of dynamic pricing and a limited account holder base. In short, consumers may modify their usage, seeing prices as less elastic than providers might anticipate.

Instead, offering a transparent, fully-disclosed overdraft program at a reasonable rate that highlights opportunity, dependability and availability can produce increases in your income and satisfaction.

Opportunity
Opportunity for your financial institution is evidenced by both a recovering economy and published data:
  • According to the 2013 Federal Reserve Payments Study, debit card payments tripled from 2003 – 2013. The most popular non-cash payment form, their usage nearly doubled that of credit cards, and every indication is that their pace has maintained or grown.
  • Monthly debit card point-of-sale use grew 32% from 2005-2014, according to the Pew Center.
  • 2015 FDIC figures indicate a rise of nearly one million unbanked households in the United States, plus 25 million underbanked households, who are often described as being dissatisfied with their current provider and represent “low-hanging fruit” to consumer-minded financial institutions.
Dependability
Consumers have high expectations in their banking relationships. Balances are accessible, deposits are insured and staff knowledge and familiarity often breed trust. With a reasonably-priced and fully-disclosed overdraft protection plan, consumers can count on:
  • Limits established with the full knowledge of the account holder
  • Purchases routinely paid in the event of a temporary account shortfall
  • Transaction clearing policies that avoid maximizing overdrafts by sophisticated algorithms, and the resulting fees
Availability
A fully-disclosed plan supports the financial institution’s income and account holder satisfaction objectives by:
  • Being accessible to nearly all holders of basic checking accounts, and to debit card holders who opt-in
  • Featuring clearly written materials that educate the account holder and allow them to make a fully informed decision
  • Not discriminating among customers, but instead providing value in the form of reasonably-priced, user-friendly products and services
If your bank or credit union is re-evaluating service offerings including your overdraft solution don’t lose sight of how consumers often respond to vagueness or uncertainty. They tend to restrict or pull back, similar to how financial markets often fall in times of ambiguity. Accordingly, it may well behoove you to choose the transparency of a fairly priced, fully-disclosed overdraft protection program—one that allows the consumer to make a fully-informed decision—and let participation and income grow organically from the derived value.



Learn more about overdraft programs:
The Many Benefits of JMFA Overdraft Privilege
Building Trust with Account Holders

 


 

Name:
Email:
Subject:
Message:
x
account holder account holder retention account holder strategies account holder strategies; growth strategies; account holders announcement attracting talent Bank of Pacific banks batching best practices board governance board member board of directors bottom line branch profitability branding Bryan Hanks budget business culture business environment business strategies career advice Case Study CEO onboarding CFPB Charles Shanley Cheryl Lawson Chris Karstens communications Compliance compliance examinations compliance risks Consumer FInancial Protection Bureau Contract Optimizer Contract Renegotiations contract review contract staffing core processor contracts corporate culture corporate governance CPE credits credit card contracts credit cards credit unions Crissandra Fry CSS culture customer service cyber security Darin Byrd debit card contracts digital directors economy efficiency studies election employee employee retention employees EMV migration evaluation executive search expense management expense reduction expense studies expenses Federal Reserve Board fees financial services financial stability Floyd's Forum full disclosure Generating Income generating leads generation governance government hiring HR HR Consulting HR policies human capital human resources income income enhancement interview strategies interview tips IT contracts Jan Southern Jennifer Peoples Jim Griffis JMFA Academy JMFA clients JMFA News job search John M. Floyd Keith Hughey Kelly Flynn Kim Kreps leaders leadership lending program Linda Meyer loans management Mark Roe marketing Midwest Region Millennial Millennials Missouri NCUA negotiating contracts Net Operating Analysis NOA Non-Interest Income Oliver Ireland onboarding Organizational Health outsourcing overdraft compliance overdraft coverage overdraft fees overdraft practices Overdraft Privilege overdraft program Overdraft programs overdraft protection programs overdraft service overdraft strategy overdrafts Paul McFarland payday loans Pennsylvania performance improvement personnel planning Press Release Privilege Manager CRM process improvement product profitability Profitability Improvement project staffing Recruiting Recruitment Services recruitment strategies re-engineering regional director regulations regulators regulatory Retaining Employees revenue revenue enhancement Richard Miller ROI Ron Jennings senate service service agreements shareholders social media staff staff development staff spotlight staffing staffing gaps staffing studies staffing study stakeholders Strategic Planning Succession plan succession planning Susan Prell talent technology technology costs technology utilization temporary staff Tim Strandquist training UDAAP vendors Washington Westmoreland Community FCU