LAKE BLUFF, Ill.-One economist believes there is enough overdraft and checking revenue up for grabs in the final months of 2011 to cover credit union assessments and any interchange losses for the entire year.
Michael Moebs, economist and CEO of Moebs Services, told Credit Union Journal that banks are handing over approximately $4 billion to $5 billion in checking and overdraft revenue.
"Credit unions need to take advantage of this. We have a client in Florida who is going after this marketplace and they will have more revenue this year in overdraft than they have had in any previous years," Moebs said. "They will have enough to offset any interchange losses and cover their assessments."
Credit unions, according to Moebs, must keep free checking, market that aggressively, and adjust overdraft pricing to below $20-a trigger point Moebs research has shown encourages consumers to switch their checking account in search of lower fees or free checking.
One reason the opportunity is so large now, insisted Moebs, is the high percentage (77%) of consumers opting in for overdraft one year after the implementation of Reg E, indicating they see it as a service, not a penalty (CU Journal, Aug. 15). "The data is through March. We believe the latest numbers will show the percentage to be even higher."
What's also opening the door, according to Moebs Services' statistics, is two-thirds of banks above $50 billion in assets have dumped free checking.
"By the end of the year the too-big-to-fail Wall Street banks will have lost close to 15 million checking accounts since Bank of America decided not to do debit card overdrafts in March 2010."
What will tip the revenue scales even further credit unions' way are big banks quickly getting out of the overdraft business this year due to restrictions placed on overdrafts by the FDIC and the Office of the Comptroller of the Currency. "These restrictions are taxing the banks' ability to offer overdraft services. They can still run this race, but they have to do it with a big backpack. So many are getting out."
While about 15% of banks don't offer overdrafts, most are the Wall Street banks that are moving away from overdrafts, especially debit card and ATM overdrafts, stated Moebs. Approximately $37.1 billion in revenue was made in 2009 by all banks and credit unions, noted Moebs.
Through the first quarter of 2011, annualized revenue had fallen to $30.1 billion. "This revenue is waiting for the credit unions to take," said Moebs, because most of it was with Wall Street banks that are shedding free checking and overdrafts."
Moebs insisted that credit unions should go after the overdraft market as if it were "manna falling from heaven," pointing to numbers that illustrate the opportunity. "Break it down and you see that nearly 100% of those people who overdraft 10 times or more a year gave consent. These consumers constitute 91% of the total overdraft revenue brought in by both banks and credit unions."
Moebs' statistics also show that 75% to 80% of anyone who overdrafted in the last two years gave consent.
"Then there is 35% to 40% of the 130 million checking account holders out there who never made an overdraft in the past two years, and just over 50% of those people gave consent. That is an amazing number."
