Does Your Overdraft Management Program Offer These 5 Critical Features?
Tim Barrett, Executive DDA Strategist
It’s a New Year! It’s a great time to take a close look at your overdraft management program and its role in helping you achieve your bank or credit union’s goals for 2018 and beyond. Is your current solution one that meets the needs of your account holders, your regulators, your staff, and your board of directors? When considering the efficacy of your overdraft management program/software, ensure that it offers the following 5 critical features:
1 – Experienced Solution Provider with Access to Experts & Best Practices
Having an experienced solution provider with flexibility, multi-platform knowledge, a full team of experts and best practices to tap into is essential. Does the company have knowledgeable and experienced staff well-versed in compliance, operations, and finance? Does the company allow (or is it even capable of allowing) you to make choices? For example, do you have a choice to advertise the limit (or not) and have you been informed about the pros and cons of each approach? 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 partnership choice. Best practices are accumulated through time-tested experiences and will enable you to be prepared for examinations. You should have access to the latest information and assurances that you have access to subject matter experts with decades of financial institution experience ready to assist with important program decisions.
2 – Proven Dynamic Limits
Did you know that all overdraft programs are dynamic in nature? One must evaluate if the dynamic limit approach should be based on simple limit options, or logic-based multiple limit assignments. For example, a simple two-option dynamic limit requires unnecessary effort to facilitate and doesn’t meet everyone’s needs. In some cases, that simplicity can be harmful to the account holder resulting in an unnecessary account closure. One must also question if the approach is the same as it was 20 years ago. If so, then it is likely the provider hasn’t invested intellectual capital and development to the product. Consider an approach applying relationship logic to meet the needs of each unique customer/member while reducing costly losses and human resources who are trying to determine repayment risk. With the proper approach, it is possible to be near equilibrium to revenue and attrition. Did you know you can deploy proven 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 account holders from charging off and then becoming unbanked.
3 – Unique Features
Keys to an efficient program include relationship tracking for transaction risk, evaluating other non-interest income opportunities and providing a consistent message to account holders. A sign of a good product and service is the provider’s constant willingness to listen to creative ideas and invest in new features. Look for unique functionality outside the typical overdraft box. Some examples in evaluating a provider:
- Does the solution provider understand how to implement deposit trend marketing campaigns?
- Does the provider use predictive attrition analysis to adjust to your unique demographics or provide data science techniques enabling important business decisions?
- Does the provider allow the option to notify consumers of the service and the overdraft limit amount?
- Does the provider offer a Mobile Deposit Risk score?
- And on and on….
4 – Full Analysis of Performance & Reporting
There is constant change in both the regulatory environment and consumer activity that can impact how you meet your account holders’ needs. Periodic full data analysis of program performance specific to your bank or credit union (but comparing you to peer data) 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. Find a proven approach utilizing years of constant data from millions of accounts derived from hundreds of financial institutions with billions of data points, 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.
As for the reporting your bank or credit union receives, you should feel confident that the reports provide actionable information for management, operations, and examiners. 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?
5 – Training & Support
You should have assistance with proper documentation that outlines the operational procedures supporting your financial institution’s overdraft program. Training materials should cover specifics like customer/member-friendly and regulatory-friendly Reg. E discussions, understanding dynamic limits and proper non-discriminatory granting of fee refunds. 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.
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 who are easily reachable and who are fully employed by the solution provider you are considering.