Technical Overdraft
  • 26 Oct 2021
  • 3 Minutes To Read
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Technical Overdraft

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Article Summary

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation, the account is said to be "overdrawn".
If there is a prior agreement with the account provider for an Authorized Overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate.
If the negative balance exceeds the agreed-upon terms, then additional fees may be charged and higher interest rates may apply; this is generally recognized as a Technical or Unauthorized Overdraft.

Please Note
Technical Overdraft is available for current accounts only. Mambu allows withdrawing below the authorized overdraft limit only for card transactions (when the settlement type is Financial Advice, meaning that requests are accepted without balance validations).

Given a client who has a current account which has Authorized Overdraft enabled and the client's total balance is < total balance > with an overdraft limit of < overdraft limit >

When withdrawing < amount > via < card settlement type >

Then the result of the withdrawal operation will be < execution result > and the resulting account will have the following balances: available balance, < expected available balance >, and technical overdraft amount, < technical overdraft amount >.

Replace the <> with the example results below:

Total BalanceOverdraft LimitAmountCard Settlement TypeExecution ResultExpected Available BalanceTechnical Overdraft Amount
-1001001Financial Requestfail00
-1001001Financial Advicesuccess-11
001Financial Requestfail00
001Financial Advicesuccess-11
1001001Financial Requestsuccess1990
1001001Financial Advicesuccess1990
100100201Financial Requestfail2000
100100201Financial Advicesuccess-11

Technical Overdraft Interest Rate

For the initial phase, the Authorized Overdraft settings are applied for Technical Overdraft as well as for Current Account type of products. If no authorized overdraft interest is set (or authorized overdraft is not enabled on the current account), then no interest will be applied for technical overdraft amounts.

Mambu will allow setting up a different interest rate for Technical Overdraft in a future phase, please follow our future release updates.

Repayments and Technical Overdraft

When the client makes a deposit, the Technical Overdraft due amounts will be repaid first, before Authorized Overdraft, Fees and so on. See below the balances order over which Mambu will apply deposits:

Deposits and technical overdraft

Reversing a transaction that covered technical overdraft amounts is generally allowed, unless the account is thrown back into Technical Overdraft or it has hold or locked (guaranteed) balances. See below example:

Given we have an account with:

  • Overdraft limit = 500
  • Holds Balance = 1
  • Authorized Overdraft amount due = 500
  • Technical Overdraft amount due = 100
  • Technical Overdraft Interest due = 50

After performing a deposit of 250, Mambu will no longer allow reversing the 250 deposit. This is because the reversal will throw the account back into Technical Overdraft and reversals are currently not allowed as transaction types which may trigger Technical Overdraft.

How is Technical Overdraft impacted, if the Authorized Overdraft limit is increased?

Mambu will redistribute the Technical Overdraft amount due if the Authorized Overdraft limit is increased.

As such, if the Authorized Overdraft limit is increased high enough, the Technical Overdraft amount due may become 0. For example, if an account with an Authorized Overdraft limit of 100, which is used up, and a Technical Overdraft amount due of 200 has its Authorized Overdraft limit raised to 400, then the Technical Overdraft amount due will become 0 and the Authorized Overdraft amount due will be 300.

Account Impact

Mambu allows the retrieval of information related to Technical Overdraft at account level, just as we do for Authorized Overdraft. Retrievable information:

  • Interest Rate
  • Interest Accrued
  • Amount Due
  • Interest Due

The Technical Overdraft amount will also be stored at transaction level, as part of the transaction details, and will also be taken into account when writing off a deposit account with overdrawn amounts.

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