More than 85% of community banks say that their overdraft programs have remained profitable despite rule changes that require banks to receive customers' consent before approving overdrafts on debit transactions.
Overall, though, many banks have seen their payments revenue decline in the past year, due largely to increased fraud and compliance costs, according to a survey released Thursday by the Independent Community Bankers of America.
More than 700 community banks responded to the payments survey that the ICBA conducts every other year.
Among the key findings was that overdraft remains a revenue producer for many banks, with 44% saying that overdraft programs are very profitable for 44% and 42% reporting that they are somewhat profitable.
Still, roughly four in 10 said that overall payments revenue declined in the last year, with 10% reporting a "significant" decrease, according to the ICBA.
Cary Whaley, vice president of payments and technology policy at the ICBA, said that many banks attributed the drop to increased fraud costs, which can include reimbursing customers for losses, issuing new debit cards and upgrading technology to combat fraud. Ninety-five percent of the banks surveyed said that they experienced losses from fraud in the past year, up from 67% in the 2009 survey.
"Fraud is a growth industry," Whaley said.
Whaley also said that compliance costs related to changes in overdraft rules and online banking authentication requirements also reduced payments revenue.
Many banks, too, are concerned that new regulations — including limits on interchange fees — could crimp future profits. Nearly eight in 10 bankers surveyed said generally that compliance costs are the biggest threat to their payment strategies, while 56% said specifically that they fear a loss of revenue from new rules that have reduced interchange fees on debit transactions.
Though banks with less than $10 billion of assets are exempt from the interchange caps, many small banks fear are concerned that they may need to lower transaction costs to remain competitive.
Whaley said that banks will continue to seek new sources of payments revenue. Only 15% of community banks surveyed currently offer mobile banking, but an additional 50% plan to offer the service by 2013. Similarly, only 27% offer person-to-person payments, but 33% more said they will do so within two years.
