Only 26% of US consumers are willing to opt into a fee-based overdraft protection program, according to a recent survey from The Nielsen Company.
Four in 10 Consumers Undecided
The FDIC’s new “Regulation E” now requires banks and credit unions to obtain permission from new customers (August 15, 2010 for existing customers) to apply overdraft protection on non-recurring debit card transactions and ATM withdrawals. Most banks have prepared for the ruling by either offering overdraft protection for the first time, dropping overdraft protection programs or reassessing their overdraft fees (fees are allowed under the new regulations).
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.
‘Upscale Earners’ Show Most Interest
Nielsen performed further analysis of the survey respondents mapped against dozens of lifestyle segments, which group consumers by demographics, census data, lifestyles, shopping patterns, media preferences and other attributes.
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. In addition, they are also receptive to a variety of insurance products.
The main reasons Upscale Earners stated for opting in included having coverage for emergency situations/unexpected expenses, having multiple card users and not always knowing their balance, and avoiding embarrassment at checkout.
Lower Income Consumers Less Interested
Two consumer segments that indexed higher as undecided were groups known as “Working-Class USA” and “Fiscal Fledglings.” Those in the “Working-Class USA” group are are racially and ethnically diverse and range from being employed in white collar jobs to service industry jobs. However, nearly nine out of 10 people in this group earn less than $30,000 a year, although 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. Nielsen advises 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 reasons for their indecision including not having enough information, having no idea about the opt-in/opt-out provision, and having not yet reached a decision.
Advice to Obtain Consumer Opt-in
Deborah Sumner, VP, financial services practice lead at The Nielsen Company, says regardless of a bank’s strategic direction for meeting the requirements of Regulation E, a comprehensive communication plan and consumer strategy are necessary.
“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,” Sumner says. “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.”
Consumers Unaware of Overdraft Protection
Most bank customers are unaware of new regulations requiring opt-in overdraft protection and unlikely to pay a fee, according to a recent Harris Poll. Only one-quarter (27%) of consumers claim to know all about the new regulations. Most have just heard a little (37%) or never heard of the changes (36%), meaning the banks still have work to do with their customers. This general lack of awareness of overdraft fees probably derives from the fact that only one in five Americans (19%) report having ever overdrawn their account within the past year.
About the Data: 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.