Banks Rewrite Revenue Playbook as Overdraft Fees Slide

For banks, overdraft fees and at least a few other revenue streams are shrinking, even disappearing in many cases.

To that end, reports came via Reuters Thursday (April 7) that the Consumer Financial Protection Bureau (CFPB) will be cracking down further on “junk fees” that include everything from overdraft charges to late fees on credit card payments.

We’ll know more in the coming weeks what new steps the CFPB might take on those fees — a public commentary period is still in place until next week.

But in terms of the fees themselves, estimates from the CFPB pegged overdraft fees at $15 billion in 2019. J.P. Morgan Chase, Wells Fargo and Bank of America, the CFPB estimated, represented 44% of that tally.

Many banks are ditching or at least lowering those fees — in part amid the political pressure and in part to compete with FinTechs that offer products and services without any fees.

Read more: More Banks Ditching Lucrative Overdraft Fees

The roster is growing, including Capital One, which would represent a 50-basis point hit to revenues. J.P. Morgan has been modifying those fees. Citi said that it will eliminate fees on overdrafts, overdraft protection and returned items by this summer.

Last month, Citizens Bank has launched a new checking account for underbanked and underserved communities that prevents overdrafts.

See more: Citizens Bank Ends Overdrafts From New Checking Account

Tech-driven initiatives by some financial services players are showing a proactive approach toward helping consumers sidestep those fees while managing their finances more adroitly. And the positive ripple effect is that those same consumers will feel more connected to those financial institutions (FIs), translating into new revenue streams.

Low-Cash Alerts

Last year, for example, PNC Financial Services Group announced its Low Cash Mode digital offering, tied to its virtual wallet, that lets consumers determine whether certain transactions should be processed that might result in overdrafts. The service offers 24 hours of “extra time” to prevent or address overdrafts before those fees are levied. The bank noted in its announcement that although there will be a reduction in fee revenue, the proactive approach can help grow customer relationships, which translate into new revenue streams over time.

As noted by PYMNTS CEO Karen Webster in a column last year, new levels of transparency surrounding payments — and payments timing — can help consumers keep on top of spending. She wrote that Request for Payment and opt-in services can help sidestep friction tied to transactions.

Read more: Overdrafts, Merchant Fees and Crypto