PNC's 'low cash mode' gives users 24-hour overdraft buffer

Dive Brief:

PNC Financial Services Group plans to roll out a new service that would help its customers avoid contributing to the $125 million to $150 million in overdraft fees they pay each year, the bank said Tuesday.
The Pittsburgh-based bank has been testing the feature, dubbed "low cash mode," with nearly 20,000 customers, and said it has helped them reduce overdraft fees by more than 60%.
The new feature will alert customers when their balance is low. If an account is negative, low cash mode provides 24 hours of "extra time" to prevent or address overdrafts before fees are charged. The product also lets customers prioritize payments by determining whether certain debits are processed that otherwise might result in overdrafts, "rather than the common industry practice of the bank making the decision," PNC said.

Dive Insight:

Banks collect around $30 billion in overdraft fees each year, according to CNBC, which cited data from financial research firm Moebs Services.

Banks with assets of $1 billion or more accounted for $11.7 billion in overdraft fees in 2019, according to the Center for Responsible Lending.

Bill Demchak, PNC's chairman, president and CEO, acknowledged low cash mode would eliminate a consistent revenue stream for the bank, but added he expects the new feature will attract new customers as the bank proceeds with its planned acquisition of BBVA.

"While we expect to realize a reduction in fee revenue, we firmly believe that this innovative and differentiated approach will drive significant growth in new and existing customer relationships over time as we execute our national expansion strategy," Demchak said in a statement.

PNC said its full-year 2021 revenue outlook anticipated the fee reduction, and won't be affected by the change.

Demchak said the bank believes the industry's widely used overdraft approach is unsustainable.

"Low Cash Mode is a great example of how advances in our technology allow us to better align with a core principle of supporting our customers' financial well-being," he said. "This is the right move for our customers and the bank."

Low cash mode will be available on PNC’s mobile banking app nationwide this summer, PNC said.

Many of PNC's competitors have introduced no-overdraft fee accounts in recent years. Wells Fargo launched a no-overdraft fee bank account last September called Clear Access Banking. Fifth Third Bank launched its Express Banking account with a similar product in 2016, and JPMorgan Chase, which rolled out Chase Secure in 2019. Other large lenders such as Bank of America and Citi have had no-overdraft accounts since 2014.

No-overdraft-fee offerings are common in the digital and challenger bank space.

Chime's SpotMe feature covers customers who overdraw as much as $100 past the amount in their account, while Varo, which obtained its national bank charter last year, covers transactions up to $50 over a user's account balance.