Michael Moebs, Moebs $ervices
LAKE FOREST, Ill.–In a significant portion of the market, credit unions have lost their fee advantage on overdrafts.
A new report from Moebs $ervices shows that community banks charge $25 per overdraft item, while credit unions with more than $5 billion in assets charge $27.50. Collectively, credit unions still hold a small—but not statistically significant—advantage, with the median CU price at $29 per OD, while overall the banks’ median is $30.
Community banks and large credit unions are the only two groups from the report showing prices less than the national median of $30.
“Community banks have taken the lead for having the lowest priced overdraft,” said Michael Moebs, economist and CEO of Moebs $ervices about the June 2016 study that statistically surveyed more than 3,800 banks and credit unions.
Significant Shift
Moebs said the shift is significant because collectively “banks and CUs are similar in overall OD price, with the credit unions charging only $1 less per item. In the years 2005 through 2007, banks and CUs had the same overdraft price of $25 per item. Since 2007, the community banks have not changed their OD price and now have the lowest price leadership position.”
Moebs emphasized that a lower overdraft price moves away from “penalty pricing” and drives revenue.
“Community banks, which charge an overdraft fee $10 less than the large Wall Street banks, make the same in fee revenue as those big banks,” said Moebs, referring to the study’s data. “The friendly OD pricing brings in the overdraft-conscious consumers who create a higher volume, and in turn higher revenue.”
Moebs noted, however, that the large CUs see what the community banks are doing.
OD Future
“With the lower OD price comes higher fee revenue that is 45% greater than most other financial institutions that are penalty pricing,” said Moebs.
Moebs forecast that the era of penalty overdraft pricing is coming to a close.
“Charging the consumer because ‘they should never overdraw’ is an outdated philosophy,” said Moebs. “The community banks have shown us, and the large CUs are adapting, to a low, friendly overdraft price to gain more revenue from volume produced by much higher consumer satisfaction.”