The study also found that demand for overdraft services has gotten more sensitive to the cost of overdraft. Many banks have recognized this price elasticity in their overdraft offerings, but most credit unions have not, the Lake Forest, Illinois-based company added.

“Most of the largest and/or aggressive FIs are losing OD revenue, since OD prices are elastic and the consumer responds to the higher price by curbing usage. Community banks are learning: OD price is elastic, lower price produces more transaction usage by the consumer, and greater revenue for the financial institution. OD provider and consumer OD user both win with a lower OD price,” it explained.

The median overdraft fee for all financial institutions is $30, though the largest financial institutions and the most “price aggressive” financial institutions often charge $35 or more per overdraft, according to the study. Community banks charged a median of $25.

“Community banks with assets under $100 million for many years have not increased, nor decreased their overdraft prices. These community banks have more overdraft revenue than their competitor credit unions of the same size; and on a relative basis a greater percentage of revenue than larger credit unions and even the largest banks,” it reported.

Lowering overdraft fees might actually raise revenue for financial institutions because overdraft prices have become more elastic, according to the findings. At $30 per overdraft, for example, a credit union would make $3,000 on 100 overdraft transactions. However, if the credit union reduced the fee by 17% to $25 but in response overdraft use rose by 33% to 133 transactions, the credit union could make an extra $325, Moebs Services noted.

“Those banks and credit unions who lower their overdraft prices, especially those who lower under $20 per OD, will achieve the following: more revenue, more consumers using overdrafts, more checking accounts, and greater profit,” Moebs Services predicted.