PNC takes on overdraft fees and neobanks with Low Cash Mode

The bank is expected to launch Low Cash Mode, a digital solution that helps customers avoid overdraft charges, to its Virtual Wallet users nationwide later this summer, per PNC. The service will allow customers to control when certain debits from their account are processed; in contrast, when a bank controls this process, it can drive overdrafts. Users will also receive account alerts if their balance is low, and if it’s negative, they’ll be allowed a 24-hour grace period to rectify the issue. PNC’s new offering went through a robust pilot program of over 20,000 participants, who collectively saw a 60% reduction in overdraft fees. The bank expects this to translate to between $125 million and $150 million in customer savings annually.

Larger incumbents have become less dependent on overdraft charges and are shifting to solutions that help, rather than hurt, consumers through cash-strapped periods. PNC isn’t the first legacy bank transitioning away from the practice, and it certainly won’t be the last. U.S. Bank was one of the first to enter the fray when it introduced its small-dollar loan product in 2018, and Bank of America recently started offering emergency cash to customers for a small fee. The change in approach by larger banks could engender increased loyalty and engagement as overdraft charges move from being a crippling consequence to a rare mistake.

Products like PNC’s could weaken US neobanks’ position as fee-free alternatives to incumbents, but they shouldn’t just stop at overdraft solutions.

• Broader movement away from service charges could undercut challengers’ competitive advantage. Some of the most popular neobanks in the US are targeting customers typically underserved by incumbents. In fact, New York-based Current has gone as far as offering a $100 overdraft cushion to its base at the expense of what’s likely over $100 million in potential revenues. No fee is an enticing alternative to the $35 banks usually charge, but if more incumbents decide to eschew overdraft fees, neobanks could lose one of their most potent weapons in the battle for new customers.
• And offering additional features aimed at growing and protecting wealth could ultimately create more lucrative customers for incumbents. PNC’s Low Cash Mode already benefits a customer’s financial standing by enabling them to more easily avoid damaging overdraft fees, but integrating its service into a broader personal finance management (PFM) platform could go a step further. Digital money management features focused on account balance predictions or personalized financial insights not only strengthen a customer’s ability to sidestep an overdraft, but could also help improve their financial health. And that can ultimately prove beneficial for a bank, as a customer in higher financial standing could be an eligible candidate for more profitable products, like loans.