What is more profitable for a bank?

Charging millennials overdraft fees or teaching them how to manage their money so they don’t?

by Richard Clarke, Co-founder, Director of Account Services, 15º

Aug 30


According to an article in the NYT (April 20, 2016) discussing a Pew Charitable Trust report, Millennials are the hardest hit for overdraft fees. Why? They use debit cards much more than the older Gen Y and Baby Boomer segments who are more comfortable using credit cards. These costly fees, which the report estimated at about 3 times a year cost approximately $24 each adds and up to over almost $100 a year, are used by this group as short term loans to cover unexpected expenses or just mismanagement of finances. Research also shows that Millennials are the most financially uneducated generation. But as bankers, they should see this as an opportunity to build a relationship and not a short term windfall. With almost 40% of all customers who say they would change their bank after a disappointing experience, why give a young, potentially long-term customer a reason to move their account? Especially when research shows that 73% of millennials say they would be more excited about a new financial service offering from Google, Amazon, Apple, Paypal, and Square than a nationwide bank. More than half think their bank is undifferentiated from any other, and fully ⅓ believe banks aren’t needed at all! The way to handle this inevitable situation with a younger customer is to encourage them to do one of 2 things: Opt in to have overdraft protection or open a savings account which can act as a overdraft account to cover such occurrences. Seems pretty simple. But then again, if they see you are looking after them and teaching them ways to save money, they will be a long-term customer which becomes much more profitable later when they take out a mortgage, open an investment account or an IRA.

You can read the full New York Times article here.

You can find the Pew Research here.

And this First Data site has a cool infographic website on Millennials called A guide to the financial habits of Millennials.