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?

First of all, realize that despite your best efforts to reach out to customers using all available channels, the majority of customers at your bank who have not opted-in will not understand the real life impact of a denied transaction at an ATM or merchant until it occurs. This will lead to a noticeable increase in customer complaints that will require proactive communication and the preparation of all customer facing employees.

When a transaction is declined, speed of follow-up communication will be key. If you have a valid email address of the customer impacted, it is best to use this channel to explain why the denial occurred and how it can be avoided in the future. An electronic link to your opt-in jump page will be a requisite. In addition, many banks will be reaching out to the impacted household with a phone call and even a letter with an opt-in form (or link) included. Other options to cover overdrafts should be communicated through these channels as well.

All front line employees also need to be prepared for irate customers who have had transactions denied. This preparation should at a minimum include:

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  A reinforcement of the basics of Regulation E
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  A series of anticipated complaints and questions that they will confront
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  Samples of all customer communications that were used during your opt-in campaign
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  Tools to facilitate the opting-in of the customer

In communicating with a complaining customer, it would be helpful if employees have access to approximate dates the customer may have received the communication and whether the customer opted-out (or if there was simply no response to the communication). There should also be additional FAQ brochures available to assist the customer in either changing their opt-in status or better understanding the impact of opting-out.

A customer who has a transaction denied poses a significant threat of attrition to your bank. Alternatively, this customer also provides a great opportunity to more fully explain that the regulation is universal with all banks and that there are alternatives going forward. This full disclosure can result in a 'saved' customer as well as significant retained fee income or even a cross-sell opportunity.

I would love to hear from you regarding your bank's post August 15 communication strategy. Are you going to use multiple channels to communicate? Is any bank going to have a strategy for households that reach a low balance threshold other than an overdraft?

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.

If after I read the Blog posting from Mike Ley, I still want more information, I am directed to the PNC overdraft solutions landing page for all the answers to Reg E questions as presented using a video presentation from the head of deposit products at PNC, Todd Barnhart. In addition to the very clear video, further descriptions are provided around overdraft solutions, including several overdraft protection options (with direct links) as well as the pricing schedule for overdraft protection. The site also has an extensive FAQ section and more ideas around managing money.

Overall, the integration of online and social media communication in addition to traditional direct channels used by PNC will most definitely improve the bank's Reg E opt-in rate. It will be interesting to see the ways in which other banks get their regulatory message out and the success rates experienced.

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.


In fact, I suspect customers will soon be confronted by messages on ATMs and discussions in branches to encourage them to opt-in much like all other banks are doing. There may even be a program to automatically offer a line of credit 'advance' if a person is about to overdraw their account at an ATM or at a retail POS location. Much like a credit card overdraft, the transaction could be interrupted by the opportunity for a customer service call where a representative offers a small line of credit to allow the purchase to continue as desired.

And there would still be a fee for every transfer made between linked accounts or from the reserve account.

Credit Bank of America for a very well timed public relations announcement, especially in light of the poor communication done by Chase Bank in some of their opt-in mailings. But be careful to give too much credit when the goals of Bank of America at the end of the day appear to be similar to most other banks. And expect most competing institutions (except Citi where there are no overdrafts) to begin to tout 'choice' as their response to Bank of America automatically opting-out all customers.

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.


As expected, the article positions the mail in a somewhat biased manner as the first in a series of heavy handed customer communications from banks across the country to maintain the high level of fee income currently generated. While the article references many industry marketing experts, most are quoted around how they are helping banks get customers to opt-in as opposed to referencing the experts who have done research around why consumers do not want OD coverage to cease.

From this initial outcry, it is apparent that banks will need to be careful as to the way they balance the communication of education around Regulation E with the desire for the most impacted households to continue to be covered. The New York Times article also illustrates the pressure our industry will feel in the coming months around the fees we charge for these services.

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.

New Checking Plans Emerge in Response to Reg E

Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.
With a foundation account that features online banking and bill payment, customers can select from a list of additional features for $2 a month. These range from double reward points or cash back on transactions to a free OD waiver, free foreign ATM transactions or interest on the acccount. Customers can even change the features they prefer as their checking behavior changes. According to representatives from the bank, this account represents approximately 80% of the new accounts opened. A few months ago, BBVA Compass expanded their product line to include a small business version of the Build to Order Checking.

Another interesting alternative offered by some banks is an account with a line of credit attached to cover any overdrafts on the account. Not necessarily new to the banking world, some of these accounts with a line of credit are regulated by Reg Z as a credit product as opposed to Reg E, which covers electronic payments.

Finally, there are some banks that are developing a much stronger online checking product with debit transactions and online bill payment requirements while some banks are linking checking accounts with savings accounts to enhance relationship depth and profitability.

It is clear that we are seeing a new wave of product innovation in response to market conditions and the upcoming new transaction regulations. I will continue to share new ideas as they are introduced.