Deposit a check in a bank, and there is likely to be a three to five-day hold period on the funds depending on the drafted bank, amount, the method of deposit and depositor status. Luckily, most banks will make at least a portion of the check either immediately available or available the next day (see graphic below). However, there are a group of banks that charge for the privilege for immediate availability, particularly in conjunction with mobile deposit. In this article, we look at how these banks pull it off and if this is something your bank should consider.
Express and Priority Availability
PNC, for example, has their “Express Funds” program where approved checks deposited by existing customers have immediate, same day, availability. PNC charges 2% of the total check amount with a $2.00 minimum fee.
Similarly, BBVA Compass has their “Priority Availability” product which also makes funds available the same business day for a flat $5.00 fee. Regions Bank goes with a tiered structure and charges a flat $3.00 fee for next day availability and 1% to 3% with a $5.00 minimum for immediate access.
Bulk, Loyalty Pricing
Fifth Third has their Express Banking product which comes with expedited check availability. Instead of a flat fee or a standard percentage of the check face amount, Fifth Third charges between 1% and 4%, with a $2, $3 and $4 minimum all based on if the check is personal and based on account activity. Deposit a government or payroll check into an account that has more than 16 transactions per month, and the charge is a minimum of $2, or 1%, whichever is greater. Deposit a personal check and need same day availability in an account that clears four items or less, and the charge is the greater of 4%, or $4.
Does This Product Make Sense? Risk vs. Profitability
As digital payments increase, we consider express check availability as a short-term transitional product. While many customers raise issues with being charged a 3% fee for making their own money available to them, banks that have been successful with this product has done so packaged with an educational program explaining the risks.
The risk of fraud is ever present, and banks need to be compensated for the increased risk. However, remote and mobile check deposit operational risk is well understood. If the express availability program is limited to certain known payers, for limited amounts, for accounts that have a risk profile known to the bank and if proper risk protocols are followed (duplicate check scans, IP address verification, etc.), we estimate fraud risk to be less than 1%. Some institutions report loss rates as low as 0.03%.
Given that this product is for established accounts for customers that have to proactively opt-in and agree to take the liability, exploitation-type and fake payday lender scams are materially limited.
On the revenue side, it all comes down to the composition of the retail and commercial customer base. With one in every 76 accounts using the service at least once per month for an average of more than twice per month, that equates to a revenue stream of approximately $8,684 per month for every 100,000 accounts.
Putting This Into Action
There is a reason why only a select number of financial institutions offer this product. If you don’t have the right risk systems in place for mobile and remote deposit, the limited amount of fees isn’t worth the revenue and the added compliance risk. Further, with the rise of person-to-person payments that have next day availability combined with same day ACH, demand should continue to weaken for this product. In focus groups that we have been a part of, the average household and the average business has little need for same day availability.
However, as the revenue model shows, you don’t need the average household or average business to demand the product. If banks want to take the time, there are select customer types that have a need for real-time funds availability and present an acceptable risk. If your bank is not leveraging a person-to-person payment application like Zelle and you are not promoting same-day ACH, then having an express check availability might make some sense for the right customer base. The risks can be largely mitigated, and banks like PNC, BBVA Compass, Fifth Third and others feel they would rather give their customers the option for immediate availability as opposed to telling them they are limited to $200 or a three-day hold period.
Submitted by Chris Nichols on September 28, 2017