Sending Out an SMS : The Impact of Automatically Enrolling Consumers Into Overdraft Alerts

Incidental charges incurred by UK consumers on their Personal Current Account (PCA) are steep, especially for small amounts of unplanned borrowing and unpaid items. A recent policy mandates major UK banks to send consumers a text message alert of impending charges, allowing them to act before they incur a charge. Using a unique, large and detailed dataset covering the transactions of 1.5 million consumers across 6 banks, and by looking at large-scale automatic enrolment exercises carried out by two major banks, we estimate the effect of automatically enrolling consumers into these alerts. We find that automatic enrolment into alerts has large effects on charges: (i) automatic enrolment into unpaid item alerts (that inform customers of retry periods) reduces charges by 21-24% and (ii) automatic enrolment into unarranged overdraft alerts reduces charges by 25%. We also estimate average treatment effects for different types of consumers, grouped by their pre-alerts level of incidental charges (rare, occasional or heavy), and find that the benefits of automatic enrolment differ markedly between types of consumers. Those who rarely incur charges can avoid as much as half of charges thanks to alerts, whereas heavy users still incur substantial charges after automatic enrolment. We find strikingly similar patterns across the two banks, for both unpaid item and unarranged overdraft charges, providing reassurance that these findings are not specific to a particular customer base or firm implementation