A Google search on the term “overdraft” returns more than 69 million results, many of which focus on how to avoid “unfair” fees. However, the negative press and regulatory chagrin over overdraft fees doesn’t reflect the reality that most American consumers value and understand this service. Studies have shown that responsibly-run overdraft programs provide benefits to consumers that are many times the amount of the overdraft fee, and a recent Morning Consult survey found that half of Americans think overdraft fees are fair.
The narrative pushed by regulators and neobanks trying to compete with more traditional financial institutions has focused on the dollar amount of the fee. But what they’re not talking about is how the concept of “you get what you pay for” applies in this situation. Meaning, what about the dollar amount of the liquidity that the financial institution provides to the consumer? And what kind of say can the consumer have in how their payments are handled?
These are extremely important distinctions that distract us from having a conversation about the most important piece of the overdraft puzzle: the need for consumer liquidity with transparency and control.
Closing the consumer liquidity gap with flexibility and control
This need is remarkably high right now. A Lending Club/Pymnts.com survey found that 61% of consumers reported living paycheck to paycheck. Half of U.S. hourly workers have absolutely no emergency savings. And Cornerstone Advisors’ recent survey found that roughly a quarter of Gen Zers and Millennials spent more money than they had in their checking accounts three or more times a year.
continue reading »