Occasional Paper No. 36: Sending out an SMS: The impact of automatically enrolling consumers into overdraft alerts

As part of the high-cost credit review, the FCA wanted to understand the impact of auto enrolling customers into overdraft and unpaid item (retry) alerts on customer overdrafting behaviour.

Occasional Paper No. 36 (PDF)


Incidental charges incurred by consumers on their Personal Current Account (PCA) can be substantial, especially for small amounts of unarranged borrowing and unpaid items. An estimate by the Competition and Markets Authority (CMA) for 2014 puts these charges at £24 annually per PCA – an estimated £1.2 billion across the market.

Although part of this figure reflects a genuine demand for credit, evidence from several recent market investigations suggests that some of these incidental charges could have been avoided if consumers had been aware of their balance. In addition, previous FCA research shows that consumers who register for mobile banking and text alert notifications manage to significantly reduce their charges. Although such alerts have actually been available to customers of the majority of UK PCA providers for several years now, we found that very few customers, only 3-8%, had registered for them.

A recent policy initiative by the CMA required firms to enrol consumers automatically into two types of alerts: unarranged overdraft and unpaid item alerts.  But little is currently known about the impact of automatic enrolment and whether there are specific groups who benefit more than others. 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 retail banks, we are able for the first time to estimate the effect of automatically enrolling consumers into these alerts. The samples for the two banks are similar to the wider market, based on a comparison with representative customer samples from the UK’s 6 biggest PCA providers.

We find that automatic enrolment into both types of alerts has large effects on charges:

  • Automatic enrolment into unpaid item alerts (that inform customers of retry periods) reduces charges by 21-24%
  • 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). The vast majority of consumers fall into the first category, with occasional and heavy users accounting for less than 10% of consumers. We 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 the majority of their 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.


Andrea Caflisch, Michael D. Grubb, Darragh Kelly, Jeroen Nieboer and Matthew Osborne.

  • Andrea Caflisch worked in the FCA’s Behavioural Economics and Data Science Unit.
  • Michael D. Grubb is Associate Professor of Economics at Boston College.
  • Darragh Kelly works in the FCA’s Behavioural Economics and Data Science Unit.
  • Jeroen Nieboer works in the FCA’s Behavioural Economics and Data Science Unit and is Visiting Fellow at the London School of Economics and Political Science.
  • Matthew Osborne is Assistant Professor of Marketing in the Department of Management at the University of Toronto Mississauga, with a cross-appointment to the Marketing Area at Rotman School of Management.


Occasional Papers contribute to the work of the FCA by providing rigorous research results and stimulating debate. While they may not necessarily represent the position of the FCA, they are one source of evidence that the FCA may use while discharging its functions and to inform its views. The FCA endeavours to ensure that research outputs are correct, through checks including independent referee reports, but the nature of such research and choice of research methods is a matter for the authors using their expert judgement. To the extent that Occasional Papers contain any errors or omissions, they should be attributed to the individual authors, rather than to the FCA.