The FDIC’s new “Regulation E” now requires banks and credit unions to obtain permission from new customers (August 15 for existing customers) to apply overdraft protection on non-recurring debit card transactions and ATM withdrawals. Most banks have prepared for the ruling by offering overdraft protection for the first time, dropping overdraft protection programs or reassessing their overdraft fees.
As financial institutions determine the impact on their bottom line, consumers also have choices to make. But how aware are they of the implications of this new regulation, and how likely are they to take advantage if the service is offered? To better understand consumer interest, characteristics, preferences and the best way to reach them, The Nielsen Company conducted an online study of 2,013 panelists in the March 2010 Nielsen Financial Track, which looks at financial product usage, accounts, balances and asset allocation.
Of the consumers surveyed, 26%, would opt-in to an overdraft program, 22% would not and 39% were undecided. Consumers who stated they would opt-in were more likely to have an overdraft in the last year. Consumers who were undecided never heard of the regulation or didn’t know much about it.
Identifying Customers that Want an Overdraft Option
Nielsen did further analysis of the survey respondents mapped against Nielsen’s dozens of lifestyle segments, which group consumers by demographics, census data, lifestyles, shopping patterns, media preferences and more.
Customers who said they would want an overdraft option were more likely to be in a group known as “Upscale Earners.” This group is comprised of home-owning families who work at well-paying management or white collar jobs. Additionally, they are also receptive to a variety of insurance products.
The main reasons they stated for opting-in included:
- Would like to be covered in case of emergency situations or an unexpected expense
- They have multiple users on their card and don’t always know their balance
- They want to avoid embarrassment at check out
Helping the Undecided Decide
A closer look at two of the four lifestage segments that indexed higher as undecided were “Working-Class USA” and “Fiscal Fledglings.” Those in the “Working-Class USA” group are a mixed portrait of consumers who are racially and ethnically diverse and range from being employed in white collar jobs to service industry jobs. Nearly nine out of 10 people in this group earn under $30k a year and many own their own homes. The “Fiscal Fledglings” have the lowest levels of income and assets. They are the least likely to have auto, life or residential insurance. This group will need the most financial advice to determine their best option not just for overdraft but to provide consultation for their financial future.
Both groups cited these reasons for their indecision included:
- They don’t have enough information about the regulation
- They are still thinking about it
- They had no idea there was an opt-in/opt-out option
Fit the Message to the Audience
“Regardless of a bank’s strategic direction for meeting the requirements of Regulation E, a comprehensive communication plan and consumer strategy is necessary depending on consumer needs, media and channel preference,” said Deborah Sumner, Vice President, Financial Services Practice Lead, at The Nielsen Company. “Customers interested in opting-in are interested in the service just in case, therefore messages that focus on unexpected expenses are more likely to resonate with this group. Whereas the undecided customers are more likely in need of financial education and awareness messaging, to determine their best option not just for overdraft but to provide advice for their financial future.”