So far, I'm underwhelmed with the industry's online marketing response to the new opt-in debit card OD protection regulations. I expected to see new pricing models transforming small overdrafts into a value-add for debit card users, rather than the onerous penalty they had become over the past few years.

On the positive side, the elimination of OD charges for small transactions is a good first step. Three of the five FIs in our mini-survey have dropped fees on ODs of less than $5 (PNC and GTE Federal) or $10 (U.S. Bank). And Wells even makes a bit of a game out of it: Customers who cover the OD during the same day incur no fee.

And Bank of America has just thrown in the towel on the whole notion, running full-page ads (p. A11 in today's WSJ; Overdraft Control landing page) saying they'll just deny any attempt to overdraw via debit card. The retail giant joins Citibank and ING Direct, which already followed the same approach.

But financial institutions are missing an opportunity here. Take Wells Fargo, for example. When I ran across the bank's new homepage ad for debit card OD protection (see first screenshot), I expected to click through and find a novel take on the new federally mandated opt-in requirement (see second screenshot).

Wells does a good job explaining how the new rules benefit customers (the two steps forward): 

• The bank's website copy is understandable and nicely outlines the lower-cost credit line, and savings account transfer options are offered
• The toll-free number to sign up is prominent, although where's the online signup option? 
• Great to see online and mobile balance-tracking tools offered up to help avoid overdrafts in the first place
• My favorite: Customers are allowed to cover the overdraft during the same day and avoid the charge

But much of that uptick in consumer goodwill is negated when you get to the pricing:

• Debit card overdrafts are $35 each, with a maximum of 4 per day, or a $140 daily penalty if you opt in and make a mistake coffee-shop (or more likely bar-) hopping some weekend.

In a spot check of other financial institutions, it's clear that Wells Fargo is far from alone in the $30 per item price range:

• US Bank will charge $10 per overdraft of $20 or less and $33 for all others; it will charge for up to 3 ODs and 3 returned items for up to 6 per day; there's a $25 fee if you don't pay back within a week, but no charge for any item that results in less than $10 in total negative balance.
• Fifth Third Bank will charge $25 for the first overdraft each year, $33 for the next three, then $37 each after that; maximum of 10 per day; $8 per day after the third day it's not paid back; no OD charge if negative balance is $5 or less.
• PNC Bank charges $36 per item up to 4 per day, plus $7/day the account is overdrawn for a maximum of 14 days.
• GTE Federal Credit Union is charging $29 each, with no charge on under-$5 items (blog post, Facebook post)

I just don't see customers being too pleased with the price/value here. Wouldn't customers, and shareholders, be better served with a value-based pricing strategy? How about $5 each for an under-$100 mistake? Or follow the telecom model and sell debit card overdraft protection as a $4.95/mo subscription.

By my simple math, a million customers paying $5/mo is a whole lot more revenue than a few thousand paying $35 a pop. Then there are all the side benefits: customer goodwill, reduced customer service headaches, positive word-of-mouth, and the PR/marketing value of making debit overdrafts into a real service.

Debit card OD link on Wells Fargo homepage (13 July 2010)

Landing page (link)
Click to enlarge

Note: Upper-right graphic from Horizons North Credit Union, which is charging $25 per item, with no limit on the number. The opt-in ad is a huge part of its current homepage (inset, click to enlarge).

Checking account profits are being attacked on several fronts. Near-zero short-term interest rates have destroyed the profitability of the balances. Regulators and activists are putting pressure on penalty fees. And consumers are loath to pay monthly charges for what's been positioned as a free service for so long.

So how is it that Fifth Third Bank is able to bundle a service into its checking account that typically costs consumers $12 or more per month? They are bringing back the monthly fee (see note 1), charging either $7.50 or $15 per month for a so-called package account (see options below). It's a strategy right out of Marketing 101: figure out what customers want, then build the  product, package it right, promote it well, and price it for the value delivered.

I believe Fifth Third has taken the right tack with its checking accounts, though it should go even further (see analysis). The bank offers two non-interest checking account bundles (PDF comparison here), neither of which are free of charge no matter how high the balance (note 2). Instead of offering fee waivers, the bank has bundled full-service three-bureau credit report monitoring and identity theft services powered by Affinion (link to Fifth Third Identity Alerts). And the monitoring is available for BOTH names on a joint checking account (note 3). 

• Secure Checking at $7.50/month, comes with free credit report
  monitoring and identity theft protection (valued at $9.95/month per person)
• Gold Checking at $15/month, comes with the same free ID protection &
  monitoring plus free nationwide ATM access

Analysis of Secure Checking
Now more than ever, customers are craving security and safety in all things financial (see yesterday's post). Bundling identity theft/credit report monitoring in checking accounts is an excellent way to address customer concerns AND differentiate your account in the marketplace. And naming it Secure Checking helps drive home the key benefit.

I like what the bank has done. It would be even better if it highlighted more of its current security features available in mobile and Internet banking (note 4):

• Email alerts
• Mobile text alerts
• Secure storage of estatements
• Transaction monitoring for fraud and error
• Other security protections as outlined on its security page

• Out-of-band authentication via text message
• Disposable credit/debit account numbers
• Long-term (7+ years) secure transaction archives
• Enhanced fraud protection guarantees
• Dedicated security reps on call 24/7 to help out in the case of a suspected problem
• Software and tools to safeguard online banking (e.g., Trusteer, Authentium, Check Point)

Fifth Third Bank non-interest checking accounts (link, 2 Sep 2009)

Secure Checking landing page

Notes:
1. Ref: Is This the End of Free Checking?, SmartMoney Magazine, 31 Aug, by Kelli B. Grant
2. The bank does offer an interest-bearing checking account with its $15 monthly fee waived with a $2,000 average balance in checking or $20,000 across all deposit and investment products. The bank also has a free non-interest checking account option.
3. I'm not sure the bank gets enough mileage out of covering BOTH account holders to justify the additional costs. To improve profits, the bank should consider a modest additional fee (approximately $5/mo) to cover joint account holders. 
4. These benefits are hidden behind a tab that most consumers, including myself on my first two passes, will likely miss (see second screenshot above).
5. For more info on how to package security benefits into your services, refer to the following Online Banking Reports: Marketing Security (June 2005) and New Techniques for Securing Online Banking (Sep 2008).

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