Post August 15 Reg E Strategy Provides Opportunity

For the past several months, every bank I visit has been working tirelessly to educate and encourage customers to opt-in for OD coverage in response to Reg E. Multi-channel communications, including direct mail, email, outbound phone, statement inserts, online banners and in-branch literature have all been focused on helping customers understand the potential impact of the regulation while hopefully limiting the lost fee revenue associated with the regulation.

While the regulation took effect on July 1 for new customers opening accounts, banks realize that the real impact will be felt after August 15, when transactions are denied and overdraft fees can no longer be collected from current customers who have not opted-in. So what are your post August 15 strategies for customers who have not opted-in?

PNC Uses Social Media to Support Reg E Efforts

It appears PNC Bank is leveraging all available channels in their effort to capture as many opt-ins as possible. Today, I received a Tweet from PNC Virtual Wallet offering a description of the difference between overdraft protection and overdraft coverage. The message directed me to my Inside the Wallet Blog within the Virtual Wallet online banking site.

On the Blog, PNC innovation and Virtual Wallet leader Michael Ley, describes the options a customer has as to whether to opt-in or not with his post, "To “Opt In” or not “Opt In”… What is the Question?". Illustrations are used to help describe the options a customer has.

Reg E Opt In Results Better Than Expected

As I travel across the country and talk to bankers about their early Reg E opt-in results, many are experiencing significantly higher than expected acceptance rates. In fact, some banks have indicated that they have achieved opt-in rates of as high as 85% or more from the highest impacted segments (those who have the highest use of overdraft coverage) and more than 95% from new customers who are opening a new account.

This level of acceptance should provide some comfort to financial institutions who have been concerned about a massive outflow of fee income as a result of Reg E beginning on August 15. Alternatively, this level of opt in sets the bar rather high for those organizations who have either not begun their Reg E communication or had thrown in the towel expecting customers to opt out on a massive basis.

Bank of America's Overdraft Announcement is Great PR

Yesterday, Bank of America announced its intention to end its overdraft fees on debit and ATM transactions beginning this summer. Instead of being assessed a fee, the transaction will be denied unless a customers wants to opt-in to overdraft protection. The advertisement in today's Wall Street Journal positions the decision as a way to help customers from overdrawing their accounts and to provide more control and choice for their customers.

The problem is, Bank of America isn't doing anything that isn't already required by the Federal Reserve. They are just avoiding the cost of communicating with all of its customers to ask them to opt-in (at least for now). Excuse me if I don't believe that they will just walk away from millions of dollars in OD fee income.

Free Checking Obituary

Seeing that a lot of industry writers seem to be already announcing the death of Free Checking as a likely outcome of Reg E, I thought it would be appropriate to write an obituary for this product that saw such an active and successful life.

While many may claim to be the father of this service, paternity tests will most likely point to Ralph Haberfeld as the individual who most nurtured this service during the formative years and who was the strongest proponent of the benefits of the fee income associated with Free Checking. Ten years ago, when some banks (and consultants) began "pushing" free checking, there was concern about losing the meaningful income of monthly fees associated with traditional checking accounts.

Reg E Provides Opportunity for Enhanced Relationships

While many banks initially viewed the primary objective of Reg E communication as the recapture of potentially lost fee income, many banks are now positioning their Reg E communication around expanded overdraft options including linked accounts, checking reserve lines of credit and even electronic alerts. While the 12-18% of a bank's accounts that have had overdrafts in the past 12-24 months may still receive messaging primarily focused around opting-in, segmentation strategies will allow banks to reinforce the benefits of alternative overdraft protection to the roughly 80% of the households that do not generate revenues from fees or from higher balance spreads.

The benefit of communicating to a broader audience with alternative options is that the linking of accounts or the opening of a reserve line of credit can extend the life of a checking customer relationship by 2-3 years, thereby eliminating the replacement cost of the customer which can be between $200-$250 based on industry research. The value of this extended relationship far outweighs the potential for fee income for the mass market customer.

In addition, with media attention on Reg E, there is the opportunity to leverage this coverage and enhance the customer experience by educating the mass majority about overdraft coverage options available.

New York Times Attacks Chase Bank's First Reg E Communication

Chase Bank has already begun communication around Regulation E, and the New York Times (and more than 50 additional media outlets) are reacting quickly with a review of their direct marketing testing in an article titled, "Banks Apply Pressure to Keep Fees Rolling In". The article made special note of the part of the Chase mailing that stated, “Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you.” According to the NYT, the mailing continues to warn (in big red type), “If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with 'even in an emergency' underlined. Additional toned down versions of communication are also being tested by Chase, including a postcard that simply asks customers to be ready for future ways to say yes to debit card overdraft coverage.

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.