Sending out an SMS: Two studies of overdraft alerts (12.30-13.45)

Category: Applied Microeconomics and Organization Seminar , Management & Microeconomics Brown Bag Seminar
When: 18 October 2018
, 12:30
 - 13:45

Please note this seminar takes place on Thursday from 12.30 -13.45.



Unarranged overdraft, unpaid item, and other incidental charges cost UK current account holders £1.2 billion in 2014. A recent policy initiative required UK retail banks to enroll customers automatically into unarranged overdraft and unpaid item alerts by February 2018. Although such alerts have been available to customers of all major UK retail banks since at least 2012, only 3-8% had actively registered for them as of December 2016. Using a sample including 150,000 effected customers, we study a large-scale staggered rollout of automatic enrollment into alerts carried out by two major UK retail banks and find large reductions in charges: Automatic enrollment into unpaid item alerts (that inform customers of retry periods) reduces charges by 21-24%. Automatic enrollment into unarranged overdraft alerts reduces charges by 25%. Over 90% of customers rarely incur fees, and alerts reduce their charges by as much as 50%. Less than 10% of customers are heavy users and they still incur the majority of their charges after automatic enrollment.