The average overdraft charge of $35 on an average overdraft of $36 amounts to an annualised interest rate of more than 5,000%! Is this part of the banking sector's revenue business model?

How much of it could be avoided with user experience improvements?

Retail Banking is one of the oldest professions, probably the second oldest(!), so has understandably changed enormously. Most of these changes have been cosmetic though, with complicated services to attract different user groups.

Generally, the marketing teams and (nowadays) the user experience teams look at the demographics, then boil everything down into 'lowest common denominator' example users. One of these 'personas' might have the title 'cash rich-time poor', with a deeper description that includes:

Key Characteristics, Goals, Influencers, Frustrations & Pain Points, Questions

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Image credit: mrbootle via Fiickr

The research has generally been done before, so it can save a lot of time if you can reach into an online cloud of Kim Goodwin's UX resources, to get a massive head start with your product development life-cycle.

This saves your time for the important bit, deeper research and testing.

Personally, I have worked across the banking sectors for the past 16 years in new product design and despite the millions (and sometimes trillions) of dollars at stake, it is only now that a truly user centric approach is being taken.

Part of this comes from customer expectations and demands. However, the banks are also being forced to hand back millions of pounds on a regular basis, to compensate customers for unwittingly making a poor decision, often caused by poor user experience.

In the UK, the mis-selling of expensive Payment Protection Insurance (PPI) for unemployment alongside bank loan products has been rife.

Lenders like Alliance & Leicester (now owned by Santander) and HFC Bank have had huge fines. Moreover, the cliché of "if you can pick up the pen to fill in the claim form, you're well enough to go back to work", means payments are not always protected.

Retail banking products are notoriously difficult to understand, with new entrants championing 'upfront terms and no small print'. They frequently disappoint. When we talk about 'User Experience' we often concentrate on websites, apps and hardware.

However, my belief is that enormous improvements in user experience are long overdue in the retail banking sector. 

Required disclosure documents run an average of 111 pages and often hide penalty and fee information in several places so that customers cannot easily find it.

Image credit: desiitlaly via Flickr.

The Consumer Financial Protection Bureau, created by Congress last year as part of financial reform, has broad authority to ban unfair or abusive practices in financial products and services.

Protecting checking account holders from unreasonable fees and other costly traps should be one of the agency's first priorities when it opens for business in July. At a minimum, it should apply the same sensible protections won by long-abused credit card users in the Credit Card Act of 2009.

A new report by the Pew Charitable Trust's Safe Checking in the Electronic Age Project analysed the policies of America's 10 largest banks.

It shows why checking account holders, in other words most adults in the Unites States, are in desperate need of better protection. Checking overdraft fees are not "reasonable and proportional," as late fees must now be for credit cards.

Everyone must have had the shock of that letter that reads something like:

"your account has been debited £XX for the cost of this automatically generated correspondence that was sent by snail-mail, thus incurring additional daily overdraft changes."

Moreover, the costs the bank levies for going overdrawn often outweigh the amount of the overdraft. According to the study, the average overdraft charge of $35 on an average overdraft of $36 amounts to an annualised interest rate of more than 5,000%!

Image credit: jonny Goldstein via Flickr

The banks deserve to make money on these transactions. However, most of the banks studied also reserve the right to reorder transactions in ways that maximise overdraft fees. 

They can also clear checks out of the order in which they are presented, processing the largest item first, so that the account is emptied quickly and they can levy multiple overdraft charges.

The study estimates that the banking industry will reap $38 billion in overdraft fees this year, and this amounts to around $150 for every American citizen.

This is a record high and of course a poor experience for the user! However, is this part of the banking sector's revenue business model? Can it be largely avoided with user experience improvements?

The study by Pew Charitable Trust's Safe Checking in the Electronic Age Project thinks so. They believe much of those overdraft fees result from tricky disclosure, processing and fee schemes.

Jimmy Morgan

Published 6 June, 2011 by Jimmy Morgan

Jimmy Morgan is a Strategist at Human Factors International and a contributor to Econsultancy. 

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Comments (4)


Markus Jalmerot

I often experience usability issues with UK banks. Dead links is the most common issue, but I guess you will have a hard time to claim that dead links made you loose money :)

about 7 years ago



Banks really do get away with far more than other industries could ever try. I always have to remind my bank that they are working for me... it's like insurance guys who apparently don't know that I pay them to represent me.

about 7 years ago



I can't tell you how much this frustrates me!!! I've complained to my bank (Halifax) on several occasions regarding their poor user experience for checking your credit card statement online. Basically they bury it down and show it off the page in a totally different section and make it a hell of a lot more difficult than checking your regular bank accounts, which means that although I login regularly I don't get notified of upcoming payments required, my credit card balance, etc. They only send out letters after you've missed the payment, not before. It's all a trick to get you to miss the payment in the first place. I really dislike them for this and the fact that I can't login without them trying to sell me something AFTER i've logged in. I don't even read it because their sales schpeel is there EVERY time i log in. If it was less regular I probably would read it.

about 7 years ago


Jonathan Petrides

Jimmy I couldn't agree with you more. Retail banking's lack of customer-centric design is a complete joke and deserves major disruptions. Unfortunately the whole industry is insulated by major regulatory and capital barriers... this holds back sharp-minds ready to tackle these problems on a boot-strap who would otherwise already be changing the game. The good news is that there are a sprinkling of startups making progress in carving out very specific spaces and doing them right (Square in payments, in personal finances analytics, in P2P lending).

And to your question on whether penalty fees are a core component of current account income... I was part of a team back in 2008 reviewing one of the UK's leading high-street banks ~10m current accounts to advise what they could do to cope with new legislation to remove penalty fees. This bank in question saw over 40% annual income across their 10m accounts coming from ridiculous overdraft fees and were desperately struggling to work-out how to pivot their pricing to cope with this 40% reducing to 5%... they couldn't accept the critical customer-centric design principle that a customer should only pay for something where they experience value. So. Emphatically. YES.

Today I'm trying to transform retail banking in Kenya. Next... the UK.

about 7 years ago

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