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PCBB Banc Investment Daily January 28, 2016
Banc Investment Daily
January 28, 2016

Taking 3 Minutes To Talk About Overdrafts

You may not realize it but research by UC Irvine finds the average amount of time people spend on any single task is 3 minutes before they are interrupted or switch to something else. We tell you this so you can set your watch and read on as we regale you with some interesting data this morning around consumer overdrafts and consumer behavior. Ready, set, go.
Research by Novantas looked at the impact of regulations on overdrafts and consumers. It found some interesting things, but perhaps at the top of the list, it uncovered that since new regulations kicked in during 2010, overdraft fees on consumer checking accounts have declined by up to 45% in the US banking industry. That is a huge decline in just a short period of time.
The next thing that jumped out of the research was that most of the current overdraft usage is a direct result of consumers making informed choices to do just that. In fact, Novantas found that based on its own research and published regulatory statistics that 83% of overdraft volume is associated with consumers who make monthly use of online tools to monitor checking account balances. That means these consumers are informed and on top of things it would appear.
Delving deeper, the research finds that when they asked consumers about their most recent overdraft, 66% said they knew they had a low balance in their account and chose to make the payment anyway. Of those, about 55% knew they were running low on funds, but said they used overdraft to make sure the payment went through. The other 45% said they knew they were low on funds but hoped their deposit would make it to their account before the purchase went through. These are both interesting to us as the first seems to show the customer is thinking before they act and in the second are gambling on the timing of things.
In yet another area that can be controlled by the customer, 26% said they overdrew the account because they did not know they were running low or their spouse made a withdrawal or did not make a deposit. This is interesting in that it shows people likely need more help with managing their money, creating a budget or other financial skills to avoid such issues. Nonetheless, here too the action was controllable and avoidable.
Next, the research found that consumers who are regular overdraft users have access to online banking (84%), mobile banking (68%), alerts (36%) and text or SMS banking (35%). This seems to indicate many may have instantaneous information on account balances before making the choice to overdraft.
Also of note, the research looked at the percentage of people who said they opted in for debit overdraft coverage. Here, a whopping 86% said they took the coverage. Of this group, most said they wanted a safety net in case they need to make an important purchase (69%); others said they had no intention of using it but took it because it was free (16%) and still others said they intended to regularly use it as a source for short-term credit (15%). The data is interesting as it seems to show people are thinking about what they are doing and making decisions to act a certain way to benefit themselves--what you would probably expect in fact.
Finally, the study looked at the alternatives overdraft users listed as options they will use to meet short-term funding needs. These included: using an overdraft service (44%); borrowing from friends and family (36%); balance transfer (32%); deposit advance (32%); credit card (29%); installment loan (24%); payday lending (15%); and lending circles (13%).
No matter where you come down on all of this and whether or not you think more regulation is warranted or less, the data is certainly interesting. It seems to show that people generally make informed decisions and take action they believe suits them. More to think about here, but we found it interesting so are sharing it with you this morning. Now, time is up so on to your next task.