Imagine you drive 15 miles to work every morning, to a job that demands you be on time, every time. You have two freeway options: one with a speed limit that remains constant at 65 mph, or another with a varying speed limit that can be 25 mph one day, 80 mph the next, or anywhere in between.

Which road is more dependable? Which road would you choose to take?

That’s how I describe the difference between a fully disclosed, transparent overdraft program with fixed limits, versus an overdraft program with variable limits, set for each member by a matrix of data. The former, a steady and reliable option that gets you where you need to be; and the latter, an unpredictable route that can end up leaving you frustrated and in a lurch.

There’s a lot of spin surrounding matrix-based overdraft programs, and it seems pretty convincing on the surface. But what’s hiding behind these “services,” and do these models actually provide a disservice to your members?

What is your definition of a 'managed' overdraft program?

I’ve heard both matrix-based and fully disclosed overdraft programs described as “managed.” Which defines that term better?

If you consider a “managed” overdraft program to be one that relies on myriad data points to produce individual overdraft limits—which change daily—perhaps a matrix-based program fits that definition.

But if you look at a fully disclosed overdraft model, you’ll see a lot more “management” going on, in the form of:

• Member education and communication of program details upfront
• Comprehensive and continuous training for all staff, to communicate consistently about the program
• Ongoing reviews of communication compliance and limits

Don’t get me wrong, this type of program utilizes data—to monitor usage, identify trends and responsibly generate non-interest income—but not to reduce your members to faceless data sets.

Which overdraft model provides a higher level of service?

The fallacy of a matrix-based overdraft program is that its top focus is the perceived management of risk. That’s what the software is working so hard to do behind the scenes as it sets limits based on the member’s ability to repay—minimize risk. When you have dynamic or variable limits, it clearly puts the bottom line ahead of the customer’s experience. That’s providing a disservice.

With a fixed-limit, fully disclosed overdraft program while employing best practices, you offer a reliable safety net for financial emergencies. That’s providing a service and added value.

They’re free to use the service responsibly, as outlined in the terms that they accept before using it while minimizing risk. It’s a win-win for your members and your credit union.

Which model better meets compliance demands?

The data behind matrix-based overdraft programs seems to mesmerize and dazzle. But does sophisticated data translate into better adherence to regulatory expectations?

Well, how does one “opt-in” to a program that uses an algorithm? How do you agree to limits when they’re always changing? That’s a huge compliance risk right there. These programs can’t disclose that which they can’t explain.

A better option would be to disclose all fees, limits and exactly how the program works upfront. On top of that, it’s in your credit union’s best interest to choose an overdraft solution that offers 100% written compliance guarantee, along with support from experts with a history of best practices.

Which model offers more sustainable revenue?

If you start with no overdraft program at all and then implement a matrix-based program, it’s true that you’ll probably earn more revenue—at least in the beginning. But once your members start trying to use it and see that they can’t count on a reliable limit, usage starts to dwindle. Congratulations—you’ve at least mitigated risk.

So my question is, why settle for a little additional revenue with a questionably compliant matrix-based program when you can develop sustainable revenue source by providing a reliable service to your members, all while remaining totally compliant?

Treat your members like real people and not data points with a fully disclosed overdraft solution.

MARK ROE is executive vice president, sales, at John M. Floyd & Associates, a CUNA Strategic Services alliance provider.