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Overdraft Privilege
How OP Is Significantly Increasing Banks’ Fee Income
By William B. Brady

Today, every banker I know is looking for ways to improve profitability and boost customer loyalty. It’s tough to do both, but more and more financial institutions are achieving these goals by offering a new service to their customers — the overdraft privilege (OP).

What these banks have discovered is that the OP is one of those rare, win-win services that benefit both bank and customer. Customers truly like having an overdraft privilege. It’s convenient and genuinely helpful, and, as a result, they use it often. For banks, the principal benefit is obviously increased fee income. Every time their customers use the OP a separate NSF fee is generated, and that means more income for their bank. It’s just that simple.

How an OP Works

An overdraft privilege is designed to be packaged with your basic DDA, and should be offered to as many of your customers as possible. If that’s a bit unsettling to you, don’t worry. Most OP processes also include some basic eligibility requirements. The vast majority of your customers will easily meet these, but some won’t. These requirements have the desired effect of eliminating true undesirables from participating in the OP and driving up costs for everyone.

Offering an Overdraft Privilege simply means that you permit eligible customers the “privilege” of overdrawing their DDA as often as they wish — up to a pre-set, cumulative limit (usually $500). In turn, their responsibility to you is to bring their account back to a positive balance at least once every 30 days.

If this all sounds vaguely familiar, it should. Because today’s overdraft privilege process simply formalizes a courtesy — arguably discriminatory — that most banks have extended to preferred customers for many years. The OP just creates a vehicle to make that same, very desirable service available to many more individuals.

Your customers can use their privilege whenever they choose, so long as their account is in good standing. And, every time they overdraw their account — again, up to the cumulative, pre-set limit — your bank charges its customary per-item NSF fee.

At first blush, one might think that being charged multiple NSF fees would discourage a customer’s use of his or her OP, but it doesn’t. Banks that offer the overdraft privilege have discovered that customers truly appreciate the convenience the OP provides, and view the NSF fees as a natural and reasonable consequence of overdrawing their account.
It’s Easy To Get Started

Once you decide to offer an overdraft privilege to your customers, you can have the service up and running in a very short time (in some cases, just 60-90 days). The better companies offering OP processes will send their representatives to your bank and, together with a project manager from your staff, direct the implementation process. They will train your employees, install the OP’s risk management process, and show you how to use it. The best companies will monitor your results and continue to work with you to maximize your success with the process after the sale.

But what does all this cost? When it comes to fees for their services, again, the better OP companies don’t require up-front fees, but rather charge a percentage of the increased NSF fee income you earn from the program. So your financial risk from implementing an Overdraft Privilege is truly minimal. No increase = no fee.

If you’re interested in offering an overdraft privilege, better move quickly.

Based on the rapid growth of the process, it seems likely that most banks in the U.S. will be offering some form of overdraft privilege in the next two to three years.

Today’s overdraft privilege is a proven product with excellent profit potential and extremely low risk. Just take a look at your current monthly NSF fee income level. Since an OP may be able to double your NSF fee income level, it may be how much money you’re losing every month in which you don’t offer an overdraft privilege! And that’s precisely why banks across the country are implementing OPs as fast as they can.

The overdraft privilege. With its convenience and profit potential, it is truly a win-win situation for customers and banks alike.            


William B. Brady, is the president & CEO of Impact Financial Services, LLC, an endorsed vendor of the CBA, that provides overdraft privilege processes to more than 200 client banks across the country. He can be reached toll-free at 877-807-3909 or via e-mail at

Posted on Wednesday, June 30, 2004 (Archive on Tuesday, September 28, 2004)
Posted by kdroney  Contributed by kdroney


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