One Group of Competitors Has $3 Average OD Fee

By Ray Birch

LAKE FOREST, Ill.—A new study suggests credit unions should be less concerned about what big banks are doing with overdrafts and instead focus their attention on fintechs.

A new report from Moebs $ervices reveals fintechs continue to grab an even greater share of the checking market, and a big reason is a $3 average overdraft fee combined with targeted marketing.

“Fintechs are raking in the checking market share by going after those consumers who seldom overdraw but do so enough to add to profitability,” explained Michael Moebs, economist and chair of Moebs $ervices. “Fintechs are targeting, with one checking account, people with higher FICO scores. This is not what CUs, banks and thrifts are doing. Plus, most of the fintechs will pay interest on their checking account. It is classical financial services pricing— using fees, rates and balances.”

Moebs said fintechs are making their big move through “massive” national advertising.

“Especially in all sports—from auto racing to baseball to football to volleyball,” said Moebs. “Plus, the overall price is very reasonable and in most cases they pay interest, too. It took Chime only seven years to become profitable. Over half of all banks, credit unions, and savings banks do not have profitable checking.”

Market Share by Industry

The latest Moebs $ervices data show fintechs had 22.6% of the national checking market at year-end 2023, and six months later have 24% of the market.

“Credit unions have dropped to third in national checking market share, replaced by fintechs,” said Moebs. “They need to be much more competitive.”

Overall, the average overdraft list price from the fee schedules of financial institutions who have 76% of all 619 million checking accounts is $18.31 per overdraft transaction, the Moebs’ data show.

“This is down from yearend 2023 (-$1.22) or -6.2% annualized,” explained Moebs. “Some may say this is welcome relief from rising prices of all other services and products due to inflation—19.6% according to the Minneapolis Federal Reserve Core Inflation Calculator,” said Moebs. “The average overdraft price in 2020 when COVID 19 started was $30.49. So, this is a drop in the past four years of $12.18 or -39.9%, while core CPI drop rose 19.3%--remarkable changes by depositories of all types.”

What Analysis Also Shows

Moebs said the analysis shows OD price differences are widening among financial institution type.

“Overdraft prices now have great variance between FI types (see table),” said Moebs. “Banks are $5 higher than the average FI overdraft price of $18.”

Banks, such as Chase ($34 OD) and Wells Fargo ($35 OD) are not reducing price, noted Moebs.

“Banks cling to their dread of unsecured lending, which ODs are, and will not let go,” said Moebs, noting that is occurring despite all of the media attention given to large banks that have cut OD price or eliminated the charge. “Savings banks’ and credit unions’ list prices are less than the overall average. Yet, all of these FIs are losing market share to fintechs.”

Michael Moebs

In the past six months, banks, CUs and savings banks have lost 5% market share, while fintechs gained 5%.

The Need for a Strategy

Moebs said credit unions need to get in place a strategic overdraft price.

“Walmart’s $15 is driven by cost reduction of interchange normally paid out to Visa or Mastercard for Walmart purchases,” said Moebs. “BofA keeps their OD price lower or does not charge an OD if you do an auto loan or mortgage with them. Citibank wants profitable checking and will even not charge for overdrafts if the checking is profitable.”

The ’Essential Issue’

Moebs also emphasized that applying AI to debit scoring risk analysis leads to very low overdraft prices and high OD revenue.

“Defining risk is essential for OD pricing,” said Moebs. “It is time credit unions come to the right overdraft price. This is arrived at via a strategic combination of interchange, relationships, risk and profitability. Unprofitable checking and high overdraft pricing is second millennium thinking.”