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:
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 for your financial institution is evidenced by both a recovering economy and published data:
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:
A fully-disclosed plan supports the financial institution’s income and account holder satisfaction objectives by:
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.