October 8, 2015
New York, NY — Today, Novantas announces the release of its 2015 Consumer Overdraft Study — Understanding Consumer Choice: A Review of Consumer Overdraft Behaviors to shed light on the burning question — why do consumers use overdraft. The research supports the conclusion that most overdrafts come from consumers who are making informed choices — trading off the cost of short-term overdraft funding against benefits such as payment timing and certainty.
Novantas surveyed over 1,700 consumers across the U.S., distinguishing between regular overdraft users — who generate most of today’s overdrafts — from occasional overdrafters and non-overdrafters. Asking respondents about their most recent overdraft, two-thirds chose to make a payment knowing their account balance was low — with 36% saying they used overdraft to make sure the payment went through and another 30% saying they hoped a deposit would clear first. Another 26% were unaware their account was low or did not coordinate with a joint account holder — which account monitoring tools could readily reveal. Hence, 92% of these overdrafts were by choice or avoidable through more frequent monitoring, and only 8% involved bank error or other reasons. The survey also found that consumers overwhelmingly chose to opt into debit card overdraft as opposed to being pushed into it, and that most overdrafts come from account holders who have access to, and frequently use, account monitoring tools.
While some are asking for additional overdraft regulation despite a decline of up to 45% in debit card fees, Novantas sees a more productive regulatory agenda focused on: providing more, not fewer, options for short-term credit, better informing consumers by streamlining complex checking account disclosures, and encouraging electronic account monitoring usage, thus maintaining a consumer’s ability to make informed choices for short-term credit.
“Regulatory implications aside, the results all point to short term funding as a high priority in the consumer agenda, and banks need to think about convenient low-cost credit alternatives to stay top of mind,” says Hank Israel, Managing Director at Novantas. “This area is ripe for competition, and financial institutions need to continue to innovate to maintain relevance with consumers as new entrants introduce lower cost and increasingly convenient alternatives.”
Click here to read Understanding Consumer Choice: A Review of Consumer Overdraft Behaviors.
This study was initiated at the request of the Consumer Bankers Association, to better understand consumer sentiment and fill a gap in current research. CBA provided funding for the market research survey. Novantas independently designed, analyzed and documented the research results.
The Consumer Bankers Association (CBA) is the trade association for today’s leaders in retail banking – banking services geared toward consumers and small businesses. The nation’s largest financial institutions, as well as many regional banks, are CBA corporate members, collectively holding two-thirds of the industry’s total assets. CBA’s mission is to preserve and promote the retail banking industry as it strives to fulfill the financial needs of the American consumer and small business.
Novantas is the industry leader in analytic advisory services and technology solutions for banks. We create superior value for our clients through deep and insightful analysis of the information that drives the financial services industry — across pricing, product development, treasury and risk management, distribution, marketing, and sales management. For more information, visit www.novantas.com.