05/17/2018

The Battle for Retail Deposits

Ann Jones May 17th, 2018

A coffer filled to the brim with low-cost deposits … ah, those were the days. As anyone in banking will tell you, the days of free-wheeling deposit growth for community banks are grinding to a halt.

The reason? The Federal Reserve made good on its promise to raise rates, and more are coming down the pike this year. Rates are continuing to rise, making things more attractive for consumers. With that, competition is heating up and we are seeing more banks getting aggressive with their savings and other deposit rates. This is putting pressure on smaller banks to raise their rates to keep up.

And not only that, with rates rising, it brings about more competition from digital-only players like Ally, Capital One 360, Marcus and others. Many big banks like Citi and JP Morgan have been launching their own digital-only banks in response.

Challenges

The creeping-up rates are stirring the deposit pot, and banks may well find themselves in a war for deposit customers.

Attracting and retaining. How do we attract and retain deposit customers without giving them the moon? The situation could turn into a Catch-22 as more and more banks sweeten their offers in an effort to attract customers. Some may wind up losing more than they gain as current customers jump ship.

The vanishing branch. Another is the demise of the local branch. It’s always been a strong way to attract new local households with core deposits, but with branches dwindling, so too dwindles that opportunity.

Youth. Not to blame yet another thing on the millennials, but many young bankers and marketers today don’t remember the last time we faced a rising rate scenario, and simply don’t know the strategies it takes to thrive.  But they do know how to use a smartphone and know how easy it is to move money from person to person or bank to bank.

Strategies

As with any campaign for new and sustained business, the needs of the customer must be top of mind.

Give an eye toward the basics. Revamp your website if necessary. This is where you’ll likely get checked out first, so make sure it’s a quality experience for your potential customers. How about remote deposit capture and ACH for your small business customers? What’s your onboarding strategy?  Make sure your website has robust features that make online banking easy for busy young professionals.

Target the big fish. Customers with larger balances want relationship pricing and service. The high-balance customers with multiple accounts are where it’s at. You need to have all hands on deck to not only attract more big fish but to prevent them from going elsewhere. Who are these fish? According to The Financial Brand, they’re older than average and have higher-than-average income.

Target the mid-sized fish. A Raddon research study, “Deposit Growth Strategies in a Rising Rate Environment,” recommends product promotions, including mass media, direct mail, and in-branch promotions offering an attractive rate on a minimum $25,000 balance to customers currently in the $10,000 segment. Some are using it for new customers only. The reasoning? They’ll have to bring money from other sources to meet the requirement.

Focus on the full relationship. Use data to learn who your customers are, their needs, wants and life stages. If they don’t have certain products with you, why not? Find out how you can serve their needs better. Making cross sales will ensure those deposits stay put.

At Deluxe, we know rates haven’t risen like this in quite some time, creating a new set of challenges bankers haven’t seen in a while. We’ll help you go back to the future and compete like it’s 2006.

 

This content is accurate at the time of publication and may not be updated.