Segment Your Customer Base For Reg E Communications

The recent changes to Reg. E, impacting how financial institutions can levy fees for overdrafts caused by one time debit card or ATM transaction, have created a period of both challenge and opportunity for financial institutions. Due to the almost certain negative impact on a bank’s fee revenue and potential customer confusion about this new regulation, it is important to be able to effectively and efficiently implement these new requirements, maximizing account holder opt-in responses while providing a positive customer experience.

In this month's ABA Bank Marketing Magazine, Robert Giltner from Velocity Solutions suggests that financial institutions should start their communications process with a mass mail and email campaign to all customers explaining the new regulation. While I agree that all customers should be provided a clear understanding of their options, I don't agree that an all encompassing direct mailing should be done from a cost perspective.

Every customer should not be treated the same. Research shows that while most customers do not like the fees associated with overdrafts, there is a percentage that rely on overdraft coverage to meet current expenses or avoid embarrassment caused by inadequate record-keeping. To achieve the highest possible opt-in response at the lowest possible cost, I believe a segmented and integrated communications process should be used, leveraging multiple communication and response channels and focusing resources where they will have the greatest impact.

Instead of treating all account holders the same, most financial institutions I have talked to will be communicating most aggressively to the 10-15% of the customers who have the highest incidence of overdrafts, connecting with those households that the FDIC found to be the highest users (and fee generators) in their 2008 Study of Bank Overdraft Programs.

Some firms are even trying to determine which owner on an account is responsible for the majority of the overdrafts. By using all available communication channels (direct mail, statement inserts, email, POS, phone, and branch level communication), banks are hoping to communicate the benefits of opting-in to the customer, thereby minimizing the fee income impact of the regulation while improving the customer experience. The majority of the customers who do not overdraft their accounts will be more efficiently reached using a series of statement inserts, statement messages, branch level POS, ATM messaging, email, etc as opposed to postal mail.

I believe the most difficult challenge may be after the regulation takes effect in August, when customers who were not frequent overdrafters experience their first rejected ATM transaction or debit card purchase.