Don’t be complacent about the unintended consequences of raising fees
While there appears to be a great deal of hope for new opportunities and prosperity in the New Year, many banks and credit unions continue to be concerned about how to maintain robust revenue levels that ensure financial stability and allow them to maintain a competitive advantage in their market. However, due to the lack of new non-interest income sources, it can be tempting to rely on increasing fees to enhance the bottom line.
Regulators continue to focus on service charges and procedures that potentially harm consumers and limit their access to important financial services. Therefore, it is important to weigh the negative consequences of raising fees on valuable services – such as overdraft fees.
The benefit of increasing fees is temporary
While increasing overdraft fees can provide an initial boost in non-interest income, the elasticity of that income is very difficult to sustain – especially as your account holders determine that the cost exceeds the benefit of using your program. Most likely, it will instead lower your income – due to a decrease in program usage and a potential decline in volume.
The truth is, you don’t have to charge a lot to have an effective overdraft program. Providing a fully transparent overdraft solution – with reasonable fees and clear disclosures about the cost and terms of usage – can substantially increase your non-interest income because more account holders are aware of the program benefits and understand how to use it responsibly.
If they don’t need it, it doesn’t cost them anything. But if they have an emergency, they will appreciate that their financial institution stepped in to help them to get what they needed until their next deposit cleared.
Provide value and service to strengthen account holder loyalty
No one likes excessive fees. But consumers are willing to pay a reasonable charge for a reliable service that provides them with financial peace of mind when they have an occasional short-term need. If your fees are appropriate, and your processes and procedures are fully disclosed, more account holders will realize the value of the service you provide. The results? Better service for your account holders, as well as increased revenue and compliance peace of mind.
For more information about evaluating your overdraft program or any questions contact us.