Do Your Short-term Liquidity Solutions Check All the Boxes?
By Tim Barrett, Executive DDA Strategist, Velocity Solutions
In the eyes of your account holders, access to short-term liquidity may be one of the most essential services you provide. In fact, nearly 70% of surveyed consumers prefer to have overdraft protection as a banking option. After all, it can be the difference between making their mortgage/car payment on time or being assessed late fees, being docked points on their credit score, or worse.
Do your current temporary liquidity services, such as overdraft protection and short-term lending, meet consumer needs while complying with regulations and making sense for your financial institution? Here’s a rundown of the essential qualities that your liquidity solutions should possess.
Fairness
Fairness should always come first. If your services are (or even perceived to be) unfair, they won’t be utilized. Worse, unfairness could cost you your account holders’ loyalty.
At the heart of short-term liquidity fairness is how your financial institution assigns overdraft limits. Does everyone get the same $500 limit, regardless of their past deposit and transaction history? This isn’t a fair approach for consumers. Each person should be given an overdraft limit based on their ability to repay that amount within a certain period of time.
For this to happen, your overdraft solution cannot be one-size-fits-all. This brings us to the next key feature: the ability to customize.
Customizability
How do you customize your approach to short-term liquidity limits? It requires a technology-driven solution that integrates seamlessly with your core processor. This allows your financial institution to continuously evaluate account activity and risk to assign and adjust individualized limits automatically based on the ability to repay.
An additional bonus is that regulators look favorably on financial institutions that use alternative data and the ability to repay to set liquidity limits.
Objectivity
A fair short-term liquidity program is inherently objective. In addition to individualized limits, your program should be unbiased in other areas. For example, an objective program would rely on data for consistent decisions instead of a human deciding when and how much in fees to refund an account holder.
Compliant
Following regulations to a T is a non-negotiable for your short-term liquidity solution. Your program should be backed by a knowledgeable team you can trust. One that has its collective finger on the pulse of current industry developments. A team of experts that strictly adheres to and proactively communicates with you about rules and best practices. This includes expertise in helping you educate your account holders about their options and the importance of making a Reg. E decision.
Responsible growth
If your short-term liquidity solution is built on fairness, responsible growth should follow naturally. Individuals go through different financial seasons; your services should support them through each season without causing additional distress. That’s why an overdraft program should offer several avenues to protect consumers, such as:
- The ability to automatically stop overdraft usage when overdraft fees make up a disproportionate percentage of the account holder’s income
- Interest-free payment plans to avoid charge-offs
- The ability to identify “retry” transactions and proactively refund any re-presentment fees
Alternative options
Having more than one means to access liquidity immediately can help more individuals during times of financial need. While an overdraft may work for some people, others may see more benefit in a solution such as a small-dollar, short-term loan with reasonable interest rates. Further, empowering consumers to split their liquidity limit between these options offers additional flexibility to meet various needs.
As you can see, short-term liquidity solutions can be a valuable service to your account holders when operated correctly. A program built around key features like customizability, objectivity, compliance, responsible growth, options and — above all — fairness ensures that your short-term liquidity solutions check all the boxes and earn your account holders’ trust.
The Industry’s First Consumer Liquidity Engine™ by Velocity Solutions combines all of these features to offer a proven solution for financial institutions. It also includes in-depth data insights, ongoing training by our experts, an easy-to-use interface, reporting capabilities, responsive service, and so much more. Contact us today for a free demo.
As seen on CU Insight