Consumers often pay an excessive amount of fees for bank overdrafts and service overage, because they overestimate their ability to track their spending. We conduct an analytical study to examine how the advances in consumption tracking technologies — such as mobile banking apps that help consumers monitor their spending and avoid overdrawn accounts – can change market outcomes.

We find that consumers can be forgetful about their past spending, but the use of consumption tracking can help remind them. The availability of consumption tracking often helps consumers at the expense of the firm. Such benefit may be direct, where consumers make use of the technology to avoid penalty fees, or indirect, where the mere availability of consumption tracking forces the firm to lower its penalty fee.

However, if consumers are partially sophisticated regarding their forgetfulness, the availability of consumption tracking may instill a false sense of security in that consumers expect to use consumption tracking to avoid penalty fees, but ultimately decide not to bother, making them especially susceptible to penalty fees. In some cases, the availability of consumption tracking may actually compel a firm to impose a penalty fee that would not otherwise be viable, leading to higher profits and lower consumer surplus.

Therefore, our research suggests that when assessing the impact of tracking technologies, companies and regulators should pay attention to nuanced changes in consumption behavior and penalty fee structures.