Evidence type: Evaluation i
Information about the programme design and rationale
Evidence about Financial Capability outcomes for programme participants
Evidence that the Financial Capability outcomes were caused by the programme
Evidence about programme implementation, feasibility, and piloting
Evidence about relative costs and benefits of the programme
Although there has been rapid growth in consumer engagement with digital banking, as well as a growing number of money management solutions and applications, a substantial percentage of the UK population incur overdraft and unpaid item charges. It is estimated that 19 million people use their overdraft each year, while firms made £2.3 billion from overdrafts in 2016. While in some cases these charges can reflect a demand for conveniently accessed credit, it is likely that some of the charges could be avoided if consumers had been more aware of their financial position. Research from the FCA in 2018 found that sending consumers a text message alert just before they incur charges for unarranged overdraft usage or unpaid items reduces these charges by 21-25%.
Despite this, few people voluntarily signed up for the alerts, with only 3-8% registering for any type of alert by 2015. However, more recently all major UK banks have enrolled their customers to receive ‘just-in-time’ alerts, if not by their own accord then by Government policy that mandated enrolment (‘auto-enrolment’) in 2018.
This 2018 evaluation from the FCA, collaborating with two UK financial institutions, tests whether consumers would benefit from:
The main aim was to assess the effect of messaging in the reduction of total overdraft charges, as well as analyse secondary outcomes such as digital banking usage, balances, transaction patterns and the length of time people were overdrawn.
The field trial was conducted in conjunction with two major UK retail banks and involved data from over one million personal current account (PCA) consumers between November 2017 and February 2018 (the date auto-enrolment became mandatory). There were four separate trials:
The control groups for trials B, C and D were also enrolled into the alerts tested in Trial A, but did not receive the extra interventions detailed above.
A further telephone survey was also conducted with a sub-sample of 4,007 clients (2,956 from the treatment group, and 1,051 from the control groups), to gauge the effects of alerts on awareness, measure attitudes towards automatic enrolment and learn more about actions taken after receiving the alert.
Paul Adams, Michael D. Grubb, Darragh Kelly, Jeroen Nieboer and Matthew Osborne