Velocity Solutions, Inc.

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Are you frozen with fear at the utterance of the word “overdraft?” We’ve all seen the news stories about consumers who purchase a $5 latte only to end up paying a $30 fee for the transaction.

As headlines continue to spotlight the perceived abuses of overdraft fees, many financial executives have a difficult time overcoming the public perception and political scrutiny surrounding overdraft services.

A recent study conducted by the American Bankers Association concludes that 80% of consumers would prefer that their financial institution pay their overdrafts rather than incur the inconvenience, embarrassment and potential costs of having a payment or transaction rejected.

The truth is: overdraft services are important and valuable to consumers.

Velocity Solutions is the leading provider of profit strategies and consulting services to financial institutions across the United States. Our Intelligent Limit System™ provides the tools to truly manage your overdraft service as a line of business – something that is critical in the new financial climate. We do this by measuring service and pay ratios by customer segment; changing limits automatically when deposit patterns change; and tracking declined debit transactions by customer.

Our analysis indicates that overdraft income will remain a significant source of revenue growth for financial institutions regardless of pending regulatory or legislative decisions.

Best practices matter. The top 20% of banks earn 6 times more in overdraft fees per account than the bottom 20%. These institutions earn higher revenues by paying more items for their accountholders. They also better manage risk by lowering overdraft limits quickly when deposit patterns or repayment patterns change. And, when these financial institutions open accounts, they optimize, innovate and cross sell services to historically shunned overdrafters with a value business model.

To be frank, most financial institutions have only rudimentary tools for making pay versus return decisions and managing the single most important line item of their non interest income. For example, they use fixed limits when deciding whether to pay an overdraft or approve a debit transaction where insufficient funds exist. This “set it and forget it” strategy may have worked well in the past, but in today’s turbulent economy, change is needed.

Top performing banks and credit unions have evolved their overdraft processes to use variable limits and have attempted to take into consideration the transactional characteristics of each account holder when doing so. Typically, these financial institutions review this data periodically and reset limits through a manual process that occurs monthly, at best.

The growing number of financial institutions that have adopted the Intelligent Limit System, or ILS, realize the importance of using the most powerful analytical tools so that limits can be adjusted as frequently as daily for better customer service, more revenue, and less risk.

ILS uses statistically refined analytics to automate the process of setting and changing overdraft limits daily, if needed, for individual accounts. With this program, which combines software and hands-on consulting assistance, financial institutions are equipped to provide better service to customers by paying more items where risk is low, generating more revenue, while also reducing overdraft limits daily where risk increases and thereby reducing losses. Ironically, most financial institutions provide the lowest service and pay ratio to the customers with the most demand and the lowest risk. Intelligent Limit System addresses this paradox.

ILS also provides you with all of the tools needed to handle the “opt-in, opt-out” requirements that are likely to be implemented. Regardless of any regulatory changes, the messaging flexibility of our system provides you with the tools that are needed to handle this important line of business well into the future.

In the end, our Intelligent Limit System allows you to make your customers happier while collecting more revenue even in the changing regulatory environment.

If you have not seriously reviewed and upgraded your ability to handle overdraft services recently, you should consider how ILS can significantly help you manage this important revenue source for your financial institution.

To find out more, contact Velocity Solutions today and ask about our Intelligent Limit System.