Design your way to low-cost deposit growth

It has been more than a decade since many institutions have taken a hard look at their deposit products.

By Mark Gibson

The need for deposit growth is driving many banks to take a fresh look at the design of their products. Rather than paying the top rate in the market, a well-designed product with compelling benefits can attract less rate-sensitive customers with fewer marketing dollars and lower interest expense.

This article provides insight into what a compelling product looks like and how to go about creating one. It explains why beginning with the customer and defining which customer is so important. Finally, several examples of well-designed consumer and business products will be provided.

Why redesign your products now?

While a recent ABA survey indicated that 26 percent of banks’ total advertising budgets were being allocated to deposit growth, this is a relatively new phenomenon. Prior to elevated interest rates, banks took low-cost deposits for granted and were mostly focused on generating loans. As a result, it has been more than a decade since many institutions have taken a hard look at their deposit products. Consumer behavior, digitization, fintech and neobank competition have transformed the product landscape and most institutions’ product lines do not reflect the new environment. This is a key contributor to banks being forced to either pay high rates, provide cash incentives to customers, or both. Given that reality, there is a financial imperative driving deposit product redesign.

What makes a compelling product?

Why do banks pay high deposit rates or cash incentives to attract new deposit customers?

And why do companies such as Apple or Patagonia almost never discount their products? The short answer boils down to the intrinsic perceived value of the product to the customer. Some products are very attractive to customers while others are not.

At Capital Performance Group, we call a product ”compelling” or ”remarkable” if it is addressing a customer need so powerfully and uniquely that the customer is motivated to buy the product without a discount. “Unique” is self-explanatory, in that yours is one of the only financial institutions in your market to offer the product. “Powerful,” “compelling” or “remarkable” requires a bit more explanation.

While a certain benefit or feature can meet a real need in a unique way, often we find it useful to fall back on Clayton Christensen’s “jobs to be done” framework. According to Christensen, a customer doesn’t really buy a product. Rather, she ”hires” the product to get a job done. In this way of thinking, it’s critically important for an organization to understand what “job” the customer is trying to do, or what she is trying to achieve by buying the product.

A simple and familiar example would be the mortgage. Customers don’t buy a mortgage—they are hiring the mortgage to do the job of buying a house. Venmo provides another clear example. Customers are using Venmo to perform the job of splitting the dinner bill or Uber ride with a group of friends. Think of all the friction that was removed when groups of friends could simply enter their friends’ cell phone numbers to transfer their share of the bill! That is a compelling product and it spread like wildfire. Venmo grew more than 50 percent in the second quarter of 2022 alone and now has more than 90 million customer accounts.

A striking example of this thinking is the ”checking account.” While that’s what bankers call it, most consumers are not buying a ”checking account” and many don’t even own a checkbook anymore. So, what job does the checking account perform for consumers and businesses? Certainly, they are buying a secure place to keep their money and a convenient low-cost way of buying things and paying other people and businesses. Once you begin to think in this way, enhancements are a lot easier to come up with. And the underlying reasons why products such as Chime Credit Builder are so successful with specific groups of consumers. This secured credit card requires a Chime checking account to open and is targeted at consumers with little to no credit history.

You might be thinking, “How are we going to develop and introduce unique products when we are on the same core system as every other bank?” That is a very good question and one that does limit your individuality somewhat. However, many relevant capabilities are already built into your core. Often, we find that your core system might already enable unique products or features, but the product team or marketing team have not identified them, packaged them, or promoted them in a way that resonates with the market. This article will provide examples of banks that have taken this critical step.

Additionally, it’s important to realize that, while the core system controls basic product features and pricing, that is actually a small portion of the ”product” we are speaking about here.

During times like these, it’s helpful to remind ourselves of Philip Kotler’s three levels of product. Banks, like manufacturers, craft an ”actual product” to deliver a ”core benefit.” But most products also have an ”augmented” layer that includes service (think ”relationship management”), delivery (mobile banking), or other differentiating enhancements.


And, it’s a fact that many customer groups actually find the “augmented” components such as service and delivery to be more important than product features. For instance, a recent Salesforce survey indicates that 80 percent of consumers say the experience with your company is at least as important as your products and services.

So, in the broadest sense, a service promise or rapid delivery (like Capital One’s five-minute on-line account opening pledge) can be some of the most compelling ”product” benefits, even though they are not necessarily contained within your core system.

So where to start?

Continuing with the “jobs to be done” approach, the first stop is the customer. What jobs are you performing for them today? How could you improve your performance to do the job better, faster, simpler, or less expensive? A bonus is that, often, when you improve your products’ performance, you also gain internal efficiencies. Going back to Capital One’s five-minute account opening pledge, by providing a faster smoother CX, it is easy to imagine that a larger percentage of the bank’s new customers use the online application, which reduces operating costs.

Also, when banks begin examining their products this way, they may come up with jobs their products are not doing today but could do. A great example is Fifth Third’s Early Pay feature with Momentum Checking, which provides the customer’s direct deposit payment up to two days before the scheduled payment date.

How do you gain these customer insights? There is plenty of research already out there, but there is usually no better way than actually talking with customers and prospects. Focus groups are a common research technique, but there are certainly other techniques you can explore that are even less expensive.

But remember, not all customers are the same. Banks deal with consumers and small businesses and larger businesses. And within consumers, young people just starting out have very different needs and priorities than busy families or “empty nesters.” So, when you are trying to develop new products that add value and do a job, it’s important to define which customer group you are trying to appeal to.

For instance, in addition to receiving their paycheck early, younger consumers tend to be heavy debit card users and they really value rewards since many are cash strapped. According to Synergistics Research 72 percent of all consumers find rewards programs valuable, but this perceived value and participation rates highest in ages 18-34.

Several banks have leveraged this insight to create differentiated rewards programs that set them apart from the competition. One of our favorite examples is Liberty Bank in Connecticut, which has succeeded for years with its clever “Quarter Back Checking” which pays 25 cents for every debit transaction above a certain dollar threshold.

Another critical step early in the process is to look at competitors who are serving the customer segment you have identified. Remember to look not just locally, but to include banks and credit unions in other markets. You also want to pay particular attention to digital banks such as Ally and Chime, since product innovations often start nationally. By doing this, banks may find compelling products that already exist but are not yet in their markets.

Business owners have “jobs to do” too!

The same thought process applies equally well to business deposit products. Similar to consumers, not all businesses are the same, so you need to group them by similar needs and select a group to focus on.

As an example, the owner typically makes banking decisions in smaller businesses, while an intermediary such as an accountant or finance person drives banking recommendations at larger firms. Each of these groups have different needs and selection criteria. Other business characteristics matter as well, such as what industry they are in and whether they serve consumers (B2C) or other businesses (B2B).

Once you have zeroed in on the business segment to be studied, the process is much the same. It may even be easier. Just ask your business bankers for an introduction to some of their customers and have a conversation with them about their banking and some of their unmet financial needs and frustrations.

One thing you will hear from small business owners is they don’t have time to think about their banking because they are too busy running their business. There has been much innovation in this space trying to simplify product choices and make the experience fast and easy.

PNC has taken this insight into account when creating Cash Flow Insight. In fact, the program description clearly defines the three ”jobs” it helps the business owner perform: See your business’s cash flow and performance; have the ability to plan for what’s coming; and track and analyze your expenses by category.

The final business example introduces another important trend we are seeing: packaging and bundling. It’s common for a bank to package a consumer checking account with a savings account or money market account. What is less common is what we see Sandy Spring Bank doing, packaging their best consumer deposit products for their business customers. This innovation is based on the insight that nearly half of small business owners prefer to have their personal and business accounts at the same bank, but few banks reward it or make it seamless to do.

A call to action

In the race to attract deposits, it’s easy to forget that these deposits come from real people who are trying to do financial jobs. Adopting this mindset can liberate you and your product and marketing teams to think differently about what your institution can offer that may be just as compelling as a high rate or cash payment. Examples abound of other institutions that have successfully done it. We have highlighted but a few here, and our website has lots more.

An added bonus is that speaking with consumers and business owners about their financial needs and frustrations can produce auxiliary benefits. It helps your team and senior management hear first-hand the actual experience of your customers and provides insight into how you can enhance not just your deposit products but the entirety of your value proposition. This can lead to more satisfied clients, more referrals and better retention—all of which contribute to deposit growth as well.

Mark Gibson is the marketing practice leader at Capital Performance Group, a strategic consulting firm that assists banks in making the most of their marketing efforts. He can also be reached on LinkedIn.