When a bank customer is about to make a purchase or an ATM withdrawal, but doesn't have enough money in the account to cover it, usually there are two choices: refrain from going through with the transaction or pay a fee — usually around $35 — to cover the overdraft.
But customers of Huntington Bank have a third option. They can overdraw their accounts without penalty, as long as they replenish the funds by the end of the next business day.
Huntington, of Columbus, Ohio, began offering customers a grace period on overdrafts in September, in response to new regulatory guidelines that require banks to get customers' permission to cover overdrafts. And if the first few months of the program are any indication of its long-term success, other banks might want to consider following Huntington's lead.
Dave Schamer, Huntington's director of products and pricing, says what the bank is losing in overdraft fee income, it is more than making up for in customer loyalty. Huntington has had a surge of new accounts since it rolled out the program and customer attrition has dropped off dramatically, he says.
"There's something about it that rings fair in people's minds," Schamer says.
Huntington is one of just a handful of financial institutions offering any type of grace period on overdrafts, and the service is now at the center of its retail marketing efforts.
Schamer says the idea grew out of a focus group Huntington conducted after its retail banking executives were encouraged by Chief Executive Stephen Steinour to create an overdraft fee policy "that will make the bank proud."
As the research team was running through various ideas, one woman in the focus group mentioned that if she overdrew her account, what she'd want, above all, is a day to fix it. The idea stuck (Steinour loved it), and by last spring, the bank was putting the systems in place to roll out the service.
Customers who sign up for the service are notified by email each morning if they overdrew their accounts the previous day; they have until the end of that business day to replenish the funds. Soon Huntington also plans to add text alerts so that customers will receive overdraft notifications in real time.
Jeff Platter, the vice president of business intelligence at Haberfeld Associates, a consulting firm in Lincoln, Neb., says he would expect Huntington's program to resonate well with customers. Still, he says research has shown that customers are willing to pay a fair price to have their overdrafts covered, so he wonders if the bank might be missing out on a revenue opportunity. "The rub is finding a way to make regulators and customers happy and still make money," he says.
At State Employees Credit Union in Raleigh, N.C., customers have saved an estimated $370,000 in fees since September, when the credit union began offering a service that gives its members 24 hours to fix overdrafts without penalty. (It notifies customers via text alerts.)
While that's lost income for the credit union, the effect of the program is a stronger bond with customers, says Leigh Brady, SECU's senior vice president for education services. "We're keeping money in members' pockets, and they appreciate that," Brady says.
Schamer would not disclose Huntington's overdraft fee income, but acknowledged that it is down since the bank introduced the 24-hour grace period. The tradeoff, though, is not just improved loyalty, but reduced chargeoffs (because fewer customers are skipping out on the overdrafts the bank had covered) and more production from branch and call center employees (because they are spending less time bickering with customers over overdraft fees).
But, despite the benefits, Schamer doesn't expect other banks to copy Huntington.
"With all the things that are upsetting revenue streams these days, most banks are trying to fill that hole by creatively looking for ways to get fees," Schamer says. "We are very consciously going the other way."
