Bank of America Corp. is learning customers really do want a say in the matter of overdraft protection.
The bank is considering a text message feature that would allow customers to elect overdraft coverage on an individual debit transaction at the point of sale if they happened to be short on funds. Though the concept is still in the early stages — it won't be tested on a broader level in the market until early next year — it marks a shift in the way B of A approaches the overdraft issue.
In March of last year, the Charlotte, N.C., company made waves for adopting a blanket policy to deny debit card purchases at the point of sale if a customer did not have enough funds to cover the purchase. The change was made ahead of regulations requiring banks to give customers the ability to opt out of overdraft coverage and potentially avoid paying massive fees for making small-dollar transactions.
At the time, B of A stressed that its decision to block debit card purchases that would overdraw an account was in response to feedback from customers that they did not want to spend money they did not have. The decision was also applauded by Treasury Secretary Tim Geithner, who encouraged other banks to follow B of A's lead.
Other big banks countered that they would continue to give customers a choice.
"We are not going to tell consumers what they are supposed to do and we're not going to tell them what they are supposed to think," said U.S. Bancorp's chief executive, Richard Davis, at the time.
It seems B of A may have underestimated the power of choice.
Speaking at an RBC Bank financial services conference on Friday, Laurie Readhead, B of A's retail segment executive, said the bank has seen "a significant improvement in our customer experience since implementing the overdraft policy," including fewer customer service calls, fewer complaints and fewer customers closing their accounts.
However, B of A has also gotten feedback about customers wanting more options and more control.
"For the most part, they don't want to go back to the experience that they were having before, where they were consistently incurring multiple $35 fees," she said. "We think the text message solution is a much better approach to let the customer choose, because the customer still wants to choose whether or not they want to proceed with the transaction."
Analysts say B of A is headed in the right direction, even though it means backtracking on its year-old policy.
"It's a good consumer-friendly solution," said Madeline Aufseeser, a senior analyst at Aite Group.
James Van Dyke, the president and founder of Javelin Strategy and Research, also said B of A made a smart move, but stressed that the key to success is in the implementation.
"There are a lot of alerts offered by institutions of varying effectiveness," he said. "Debit payments are something that are preferred by a different audience than the bankers who run payments and this same audience values real-time alerts."
Van Dyke said banks need to be aware that alerts can be delayed by poor phone reception in a store.
Overall, he said, B of A is "realizing the market is shifting very rapidly to real-time and customer-controlled capabilities."
B of A may have another motivation. Though it does not break out revenue from overdraft fees in its financial results, its deposit service charges (which include overdraft fees) dropped 26% last year from 2009, to $5.06 billion.
Giving customers the chance to overdraw at the point of sale could make up for some lost fees.