Winning the New Deposit War

By Mark Gibson

For the past decade, banks have taken for granted the abundance of low-cost deposits. Customers flocked to banks for safety during the crisis, and didn’t see any attractive investments for that money long after the crisis ended. However, there is ample evidence this period of easy deposit growth has come to an end.

According to Darling and Associates, banks under $10 billion in assets have not grown core deposits sufficiently to fund loans for the past three years.


Retail banks are under increasing pressure to retain and grow deposits, as Mary Beth Sullivan of Capital Performance Group noted in her recent article on the subject. According to Sullivan, “We have even seen banks slowing down their commercial lending because of a shortage of core deposits.”

So core deposits are once again taking center stage as a critical strategic focus area for many financial institutions. And the task of growing core deposits is not going to be easy. Most institutions will feel the need for core funding at exactly the same time, resulting in a rather rapid increase in rates and ramp up of marketing and sales activities.

Consider the key challenges.                                            

A key challenge here is that convenient branches have historically been the competitive weapon in attracting new households and core deposits—but those have been out of fashion and under-appreciated during the recent deposit glut. In a recent 24/7 Wall Street article, Paul Ausick reported, “Since the financial crisis of 2009, 6% of U.S. bank branches have been closed. The total number of branches open at the end of 2015 was 93,283, and that number declined by another 1,614 in 2016.”

Another challenge is that many bankers today—including marketers—are too young to remember what a rising rate environment feels like, and have no experience with the tools and programs needed to win. Even for seasoned bankers, it’s been so long since the deposit-growth “muscle” has been exercised that it has atrophied and needs to be rehabilitated. A head of Retail Banking recently told us that his company disbanded its pricing committee years ago because competitive rates just didn’t change.

Finally, consumers’ preferences and media habits have fundamentally transformed since the last cycle. So proven techniques are likely to be less effective—and new ones have yet to be invented.

Devise a winning game plan for deposit growth.

Fortunately, there are plenty of community banks that have been growing deposits at a robust clip. There are valuable lessons to be learned. Here are four of the best practices.

1. Stock your tool kit.

Any carpenter will tell you that having the right tool makes short order of any job. That principle applies equally to our task at hand. Here are several of the important tools you will need:

  • Relationship Packaging and Pricing – Customers with money expect their bank to recognize their relationship and provide the best products, pricing, and service. The easiest way for a bank to do that is to offer a relationship package that provides better rates, fewer nuisance fees, and a higher level of service for customers who park a certain dollar amount at the bank.
  • Cash Management Offerings – Most middle market clients require competitive treasury services, while small businesses are increasingly requiring basics such as RDC, ACH, and wires.
  • Knowledgeable Front Line – Your bankers need to know how to have a discussion about something other than free checking or CD rates if you are going to be successful attracting the clients’ full relationship.
  • Digital Channel Functionality – Most people with money are busy, and use the digital channel to save time. While you may not have leading-edge technology, you need to at least have the basics people expect.
  • Website – The first stop for most shoppers is to check you out online. So make sure your website tells your story and presents your capabilities clearly.

2. Acquire selectively.

Do your research to understand which prospects have large deposits and what they are looking for in a bank. Have very targeted acquisition campaigns that speak specifically to what these customer segments want. Importantly, many consumers with money have complex financial lives and don’t want to move their checking accounts, even though that may be what your institution desires. As a result, promoting checking accounts can fall on deaf ears with this segment and accomplish little.

Best practice indicates that you should start where your customer is—not where you want them to be. For example:

  • First Republic Bank offers very competitive mortgages to attract wealthy prospects, then dazzles them with over-the-top service to attract the rest of their relationship.
  • Rockland Trust discovered that when it promoted its J.D. Power satisfaction award, new household and checking growth reached new heights, even though the ads never mentioned a product.

3. Onboard spectacularly.

One size does not fit all, and your institution and bankers need to quickly identify which new customers offer deeper relationship potential. Make sure you are exposing them to your full deposit, loan, and investment capabilities—and that you are demonstrating your absolute best level of service.

4.Manage relationships intelligently and proactively.

Use internal and external data to understand who your most promising customers are and which products they are likely to have elsewhere. Then assign your best bankers to establish positive proactive dialog with them.

Importantly, this is not just a consumer initiative. In fact, existing commercial and small business clients are likely to have far more deposit dollars at other institutions. Ensure that your bankers understand it’s their responsibility to obtain the entire relationship, not just the loan. Set goals based on industry standards and hold sales teams accountable. Some industry verticals can provide up to 50% of the deposits needed to fund their loans. Identify these industries and explore focused strategies to better penetrate these segments.

Grab the first-mover advantage.

While competition has already begun heating up in some markets, these are the early skirmishes in a sustained war for core deposits. Now is the perfect time to lay the groundwork and map out a robust deposit growth plan.

If you don’t quickly get these components in place, you will be left competing with high rates alone. That’s not a long-term winning formula to maximize margin and profits. Even worse, you may be forced to slow down your loan growth engine and ultimately, as JPM cited in its recent paper, be forced to sell to a bank that has a winning deposit growth engine.

Mark Gibson is senior consultant at Capital Performance Group, a strategic consulting firm that provides advisory, planning, analytic, and project management services to the financial services industry. Email: [email protected]. LinkedIn. Portions of this article are based on a similar article written by Mary Beth Sullivan, Managing Partner of Capital Performance Group.

Hear more from Mark Gibson and Mary Beth Sullivan, when they present at the ABA Bank Marketing Conference, September 24-26, 2017.  We look forward to seeing you in New Orleans!