OVERDRAFT SERVICES TRENDS UPDATE: THE IMPACT OF COVID-19 AND HOW TO PLAN FOR RECOVERY
In an effort to gain a better understanding of the impact coronavirus has had on the performance of banks and credit unions over the past several months, we evaluate a variety of metrics for our community bank and credit union clients to determine the overall success of their overdraft programs. Based on the Year-Over-Year data from April to August in 2019 and 2020, we found some key areas that have been affected since the pandemic began.
First, due in large part to a decrease in program utilization—caused by such things as the economic slowdown and stay-at-home orders—transaction volume showed a decline of approximately 16 percent by the end of April. In May, volume decreased by as much as 55 percent. As a result, overall NSF/overdraft income was greatly impacted. Initially, in April it declined by 40 percent and then fell to 50 percent in May. Another area of concern we identified was the impact on fees. In May, refunds and waives increased by as much as 51 percent.
However, beginning in August we started to see improvements in all these areas. Income started to recover as data for the month indicated an increase of 20 percent over the May results. Likewise, data for transaction volume, program utilization, as well as waived and refunded fees revealed that client institutions were beginning to see improved results.
When will NSF/OD income return to normal?
As community banks and credit unions continue to face the challenge of maintaining pre-pandemic revenue levels, we are often asked about when to expect a full recovery. Based on an analysis of Call Report data for more than 6,000 financial institutions through the end of June, the average decrease in income for all banks was 34 to 36 percent; for credit unions income decreased an average 28 percent.
And while there is no crystal ball to show us what to expect in the future, we know—based on this data—that JMFA client banks were performing 30.71 percent better in Q1 and 27.92 percent better in Q2 than non-JMFA banks. JMFA credit unions performed 5.68 percent better in Q1 and 6 percent better in Q2 compared to non-JMFA credit unions.
Proactive program management leads to better results
Even in the best of times, our industry partners will acknowledge that maintaining proactive management of every aspect of a fully disclosed overdraft strategy is key to successful program results. With that said, our engagement strategy includes ongoing recommendations to address the changing economic conditions and regulatory expectations. Plus, our implementation and support teams work closely with clients to ensure they have the resources and strategies necessary to strengthen any areas of their program that may be underperforming.
Act now to offset financial shortfalls and improve your outcomes
If you’re waiting until the recovery is underway before considering any changes to your existing overdraft strategy, consider this: Many of your competitors are proactively preparing for the post pandemic recovery. Procrastinating can put you at risk of falling behind the competition.
To learn more, check out JMFA’s latest podcast, Trends Update on Overdraft Services, with CEO John Cohron. In this episode, you’ll hear an overview of industry data and trends, including highlights how banks and credit unions are experiencing improved performance results, and how to help account holders impacted by the pandemic while maintaining compliant program procedures, and more.
JMFA is one of the most trusted names in the industry. Whether it’s recovering lost revenue, uncovering new savings with vendor contract negotiations, creating more value, serving your members better or delivering a 100% compliant overdraft service—JMFA can help you deliver measurable results with proven solutions. To learn more, please contact your local representative or call us at (800) 809-2307.