10 Considerations When Realigning
Your Bank’s or Credit Union’s Overdraft Program
Tim Barrett, Velocity Solutions
“Making better choices takes work. There is a daily give and take, but it is worth the effort.” —Tom Rath
When choosing an overdraft program, there are many factors to consider to ensure you’re making the best choice, taking into account the interests of your account holders, regulators and staff. First, ask yourself: does this platform meet your long-term goals and easily integrate with all core systems in the event you change vendors (e.g., Fiserv, FIS, Jack Henry, etc.)? It is important to limit disruption to your staff and customers or members by retaining your knowledgeable relationship team, historical data and overdraft program logic. Having an experienced vendor with flexibility and multi-platform knowledge will prove useful should a change in core relationship occur. Some providers suffer from tunnel vision, be it lack of experienced staff, environmental knowledge or type of institution.
- 2. PROVEN DYNAMIC LIMITS
“It is a capital mistake to theorize before one has data.” —Arthur Conan Doyle
Understand that there can be a near equilibrium to revenue and attrition. It is important to have proven applied dynamic limits where 99%+ of monitored overdraft events repay the negative balance. Examiners understand there is a need for overdraft services, and appreciate your efforts in preventing consumers from becoming unbanked. When it comes to supporting data, there is a difference in scientific facts (which require properly analyzed data) and scientific theories (that lack sufficient data necessary to make factual conclusions.) Find a proven approach utilizing years of constant data from millions of accounts derived from hundreds of financial institutions, account data with hundreds of millions of checking transactions, and decades of experience from subject matter experts. Ensure that peer data is provided from a myriad of financial institutions from different regions, asset sizes and core systems. Always make sure you own the data, logic and direction of your program with the support of expert professional guidance. For example, does the provider use a statistical programming suite like RStudio® to apply data science techniques enabling important business decisions? Make sure the provider is flexible and open-minded to your bank’s or credit union’s goals and cultural preferences.
- UNIQUE FEATURES
“Creativity is intelligence having fun.” —Albert Einstein
A sign of a good product and service is the vendor’s constant willingness to listen to creative ideas and invest in new features. Look for unique features outside the typical overdraft box. Some examples in evaluating a provider:
- Does the company understand how to implement deposit trend marketing campaigns?
- Do they use predictive attrition analysis?
- Do they evaluate short-term loan options?
- Do they offer transaction channel risk score?
- And on and on….
Keys to an efficient program include relationship tracking for transaction risk, evaluating other non-interest income opportunities and providing a consistent message with account holders.
- ACCESS TO EXPERTS
“An expert is someone who knows some of the worst mistakes, which can be made, in a very narrow field.” —Niels Bohr
One of the most critical considerations when implementing a new approach to your overdraft program is the accessibility to experts. Does the vendor have knowledgeable and experienced staff well-versed in compliance, operations and finance? Choices can be made on your approach to the program, and it is important to understand the pros and cons of these choices. Does the vendor allow (or is it capable of allowing) choices to be made? When a choice is made, will you be supported? Proper disclosures and well-trained staff is a must when you realign your overdraft program to meet regulatory requirements. Make sure those points will be facilitated by your vendor.
- BEST PRACTICES
“The best practice is to follow the advice posted on every railroad crossing: Stop. Look. Listen.” —Sam Keen
Best practices are accumulated through time-tested experiences and will enable you to be prepared for audits and examinations. Make sure you have access to this information and that you have subject matter experts with decades of experience ready to assist with implementation. It is important that they have specific knowledge of checking account relationships, short-term liquidity, overdraft services, data science-supported limits, regulatory knowledge and overall industry data for comparison. Your executives and employees need to be fully informed and prepared for account holder questions, internal audits and regulatory examinations, so it is critical to have these resources.
- FULL ANALYSIS OF PROGRAM PERFORMANCE
“If the metrics you are looking at aren’t useful in optimizing your strategy – stop looking at them.” —Mark Twain
Periodic full data analysis of program performance specific to your institution from an experienced data science team is critical to success. Information during the review should include multiple points of peer data on Reg. E, waivers, refunds, attrition, paid item amounts, usage and deposits. You should have trusted advisors providing you with recommendations as needed for adjustments to the dynamic limit logic. Ask what type of data tools are used. Ask if they have formal impact analysis output and how they will review business decisions your organization may be considering.
- PROFESSIONAL, ONGOING TRAINING
“It’s all to do with the training: you can do a lot if you’re properly trained.”
—Queen Elizabeth II
Another feature that is critical to a successful overdraft program is having resources for the back office and training materials for the front line. You should have assistance with proper documentation that outlines the operational procedures supporting your institution’s overdraft program. Training materials should cover specifics like customer/member-friendly and regulatory-friendly Reg. E discussions, understanding dynamic limits and proper refund negotiations. Training should be available in formats that best fit the organization, such as online webinars and the option to have professional trainers on-site. Also, look for helpful sessions included with your partnership where you can meet with a network of peers for group training, providing you an opportunity to refresh your knowledge of the software’s capabilities and ask questions of fellow participants.
- 8. FULL-FEATURED REPORTING
“The number one benefit of information technology is that it empowers people to do what they want to do. It lets people be creative. It lets people be productive. It lets people learn things they didn’t think they could learn before, and so in a sense it is all about potential.” —Steve Ballmer
Reporting is critical when managing any line of business, and making sure it is an easy user experience can be the key to its usefulness. You should feel confident that the reports provide actionable information for management, operations and the regulators. Can you create custom reports in a simple manner to reduce IT department workload? Do you have access to all the data that the system generates? Do you have access to real-time dashboards of key metrics to monitor the health of your overdraft services?
- USER EXPERIENCE
“Simplicity is the ultimate form of sophistication.” —Leonardo da Vinci
When operating in any platform, the user experience is key in utilizing resources efficiently. Some questions to ask when considering an overdraft provider:
- Is it easy to navigate to the features I will use in the software?
- Can I build output in a flexible manner utilizing unique data points specific to overdraft patterns and account dynamics?
- Is there a friendly software interface that’s deployed easily to end users?
- What restrictions do I have with licensing?
- PROMPT, RESPONSIVE SUPPORT
“Use each interaction to be the best, most powerful version of yourself.” —Marianne Williamson
Service is a primary differentiator when you decide on a vendor for any application. Ultimately, the human interaction with your trusted advisors, subject matter experts and support team will be a key part in your overdraft program choice. When entering a partnership that impacts account holders, management and staff, make sure you are comfortable with the firm you choose – not just the software. You have a right to know if you will have access to prompt, responsive resources should the need arise. And be sure to inquire whether you will be working with staff based in easily reachable geographic locations, who are fully employed by the company you are considering.