Skip to main content

Michael Moebs - What CUs Can Learn From McDonald’s

 By Ray Birch

LAKE FOREST, Ill.—Three out of five American households overdraw at least once per year. About seven out of eight households go to McDonald’s each year.

Why are those statistics important? They share a unique perspective on a problem facing credit unions and banks, and share insights into the value consumers place on overdrafts, according to Moebs $ervices, which adds financial institutions could learn a great deal about effective OD pricing from how McDonald’s prices its burgers.

Screenshot 2024-12-17 124447

Moebs data show overdraft prices fell 28.9% from 2018 to 2024.

As of October 2024, the mean OD list price was $21.85, according to Moebs national market share surveys of 74.8% of retail checking accounts at banks, credit unions, thrifts and fintechs.

“So, during COVID, McDonald’s price and revenue rose slowly. Yet the OD price fell and OD revenue fell 50%,” said Michael Moebs, chair of private financial service research firm Moebs $ervices. “While it seems odd to compare a burger to an overdraft, it represents the dilemma financial institutions are in over fees for services rendered. Ultimately this is a question of value. During the worst pandemic in over a hundred years, McDonalds succeeded but financial institutions did not.”

McDonald’s Quarter Pounder with cheese price rose 33.4%. The Consumer Price Index rose 28.3%. Overdraft prices dropped 28.9%.

“McDonald’s maintained net income and stock value, while financial institutions lost value, led by the overdraft price drop,” Moebs said.

So, should FIs treat fees like McDonald’s treats its burger pricing?

“View burgers as an index, like the Consumer Price Index,” said Moebs.

What does McDonalds do to promote value?

“McDonald’s changes prices by individual market. OD price is basically one price fits all, with little variance,” explained Moebs. “The McDonald’s price reflects the cost of ingredients, people and buildings in a value package liked by the consumer. OD pricing reflects only risk and no value caused by penalty pricing now or during a pandemic.”

Walmart And McDonald's Could Control The Market 

Moebs Mike

Michael Moebs

What would a McDonald’s OD look like?

Overdraft prices change annually for large-asset-size FIs and every several years for FIs less than $100 billion in assets, according to Moebs data.

“Plus, consumers are told overdrafting is bad,” said Moebs.

Walmart has 18.6% of all 625 million consumer checking accounts and is the national market share leader with 116 million checking accounts. Walmart charges $15 per OD.

“Combined, Walmart and McDonald’s could control over half of all consumer checking,” said Moebs, who pointed out Walmart follows McDonald’s-type pricing, too.

Moebs said the hypothetical McDonald’s OD price would be less than $15 and change two to three times a year.

“McDonald’s would price to overthrow Walmart,” he said. “At less than $15 and changing the price at least twice a year, McDonald’s would capture the checking market and surpass Walmart. FIs need to make checking and overdrafts have the value that both McDonald’s and Walmart provide…Welcome to McDonald’s, can I take your order? A Quater Pounder with cheese and McDonald’s checking with overdraft services.”

Comments

Popular posts from this blog

NCOFCU - "Video Mini's" The Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. Established in 1913 by the Federal Reserve Act, the Federal Reserve serves several crucial functions in the U.S. economy. Here are the main aspects of the Federal Reserve:  Visit NCOFCU's YouTube channel for more. "Video Mini's" The NCOFCU "Video Minis" are a series of concise 2-3 minute video presentations designed to deliver valuable insights and knowledge on key topics relevant to credit unions. Each video focuses on a specific subject, providing viewers with essential information in a brief and engaging format. These mini-presentations cover a range of subjects. Perfect for busy professionals seeking quick yet impactful content, the Video Minis make it easy to stay informed and enhance your credit union's operations and member services. Join us in exploring these informative and dynamic learning opportunities!

Credit Unions Must Focus On Treasury Rates to Avoid Liquidity Crunch In 2025

By Ray Birch LAKE FOREST, Ill.—Credit unions seeking to avoid a liquidity crunch this year must pay attention to one key fact: deposit rates are now a function of Treasury rates. To protect and gain deposits, CUs must price deposit services with high rates to match government rates, explained Michael Moebs, economist and chair of Moebs $ervices (see graph showing average T-bond rates are all over 4%.) “The U.S Treasury is a competitor you can no longer avoid,” Moebs said. “Rates for transaction accounts, like interest checking and savings, need to be markedly higher for 20% of consumers who hold 80% of the balances for these services.” In March 2023, the Federal Reserve, not the FDIC, bailed out Silicon Valley Bank, guaranteeing all deposits with 90% exceeding the maximum FDIC insurance limits, Moebs pointed out. “Deposit insurance established in June 1933 was forever transformed. Sure, deposit insurance still exists, but is viewed by consumers and small businesses to have a new partne...

President Trump is leading the way toward reduced check usage by phasing out paper checks for government payments.

WASHINGTON—A new  executive order  from President Donald Trump bans paper checks as a form of payment for the federal government. The order was signed noting that Treasury checks are often reported stolen, and face other issues. The order also notes that payments made  to  the federal government are also modernizing. “Check fraud is a perennial concern for the banking industry, growing in recent years – reports doubled from 2021 to 2022. Target stores announced last year that they would stop accepting paper checks,” the Independent Community Bankers of America pointed out. “It's a great sign that the government is leading the way toward reduced check usage by phasing out paper checks for government payments,” said ICBA payments expert Scott Anchin, noting that consumers and financial institutions should maintain the ability to determine appropriate payment mechanisms for specific cases.  ABA President and CEO Rob Nichols said his organization welcomes President ...

5 ways credit unions can future-proof their technology for long-term success

Technology is evolving at lightning speed. If credit unions want to stay relevant and serve their members like rockstars, it’s time to think ahead. While this may sound daunting, it’s actually a thrilling time to be in the financial services business—especially as a credit union. By diving into cloud-based banking, embracing AI to handle manual, repetitive tasks, and doubling down on data security, credit unions can improve their members’ lives, and set themselves up for long-term success. Below are five ways credit unions stay ahead of the competition, no matter what comes next. 1. Embracing cloud-based banking When it comes to the future, transitioning to a cloud-based banking platform is one of the most significant steps a credit union can take, especially in terms of scalability and flexibility. Cloud platforms provide the infrastructure necessary for credit unions to efficiently manage operations, reduce IT costs, and respond quickly to market changes. As if all that wasn’t enough...

Will Fed be Watching ‘That ’70s Show,’ Economy Version? Debate is On

WASHINGTON–When the Fed opted not to raise rates last his week after expressing concerns over lingering inflation—while also stating it sees strength in the economy—there is another word it “dreads” but also didn’t mention, according to a new report. That word? Stagflation, an “an economic curse that is hard to escape.” Stagflation is the term used for a combination of high inflation, stagnant economic growth, and high unemployment. “Eager to soothe worried investors, businesses and consumers, the Fed urged caution about getting too worked up about its forecast, noting that inflation caused by tariffs may not be long lasting,” said CNN in an analysis released after the Fed adjourned this week. “Nevertheless, there’s no cocktail a central banker hates more than high unemployment mixed with high inflation.” Wall Street Gets Jitters The report noted that Wall Street has already begun to sound the alarm about stagflation, Fed Chair Jerome Powell has remained relatively “sanguine.”  “Bu...