By Bryan Peckinpaugh
Banks know that competition for deposits is fierce.. How are banks defending their deposits and attracting new ones?
There is no silver-bullet solution to this challenge. However, the financial institutions that are the most successful – the ones that attract deposits without negatively impacting their bottom lines – are the ones that use data to inform their growth strategy.
Finding the right partner to help you collect, analyze and repurpose that data is a project in itself.
In this article, we will provide a framework to help you assess partners and form a cohesive deposit growth strategy.
By leveraging data to inform deposit marketing, financial institutions can pinpoint the best opportunities to increase wallet share with account holders and carefully target prospective customers with offers aligned with the institution’s goals.
Here’s how we suggest banks investigate and use that data:
Establish a baseline
Many financial institutions, particularly smaller ones, do not have a clear and accurate view of how their deposit base has shifted over the last few years. However, measuring deposit base lays the foundation for any successful growth strategy.
Dive deep
Perform a SWOT (strengths, weaknesses, opportunities and threats) analysis on your institutions, particularly the deposit portfolio. Drill into the balance sheet and identify which deposits are most likely to leave and which customers may have deposits elsewhere. Examine deposits through the lens of account holder relationships and deposit concentration. When deposits leave, where do they go? And how concentrated are your deposits? Do 4 percent of households control 50 percent of deposits or do 2 percent control 65 percent? This will provide a clearer picture of an institution’s current market share, where there are major risks or threats to the balance sheet, as well as where the biggest opportunities for growth lie.
Even with a deep dive analysis, there are three major yet common mistakes that institutions make, usually out of reactivity instead of proactivity:
Copying competitor rates. Repricing existing deposits to keep up with the bank down the street is unlikely to keep these customers loyal long term. Refine your deposit retention strategy beyond advertised pricing, and you’ll have more stability in terms of economic cycles.
Paying a premium for new deposits. Some financial institutions might pay as much as 100 extra basis points to attract new deposits. By offering current customers just 25 extra basis points, they could accomplish the same deposit growth while keeping the cost of funds lower.
Partnering with marketers who don’t understand banking. Many banks rely on third-party marketing agencies or consultants that don’t understand the banking industry. Look for a partner with analytical, banking and marketing expertise.
Watch the data and stay nimble
Achieving deposit growth goals while keeping the cost of funds manageable can seem like a balancing act. But data will provide a leg up and ensure banks do not have to rely on tactics that are wrought with pitfalls like those mentioned above.
Strategic marketing campaigns powered by data analytics are crucial for deposit growth. For example, the data from a deposit concentration table may show 500 households that have a single deposit relationship with a financial institution. These accounts are excellent candidates for adding secondary products and services.
Predictive analytics help identify customers who are likely to accept new products or services, increasing their lifetime value and ROI.
There is one more secret to profitable deposit growth: agility. If a bank’s destination is more stable deposits, data analytics are like the wheels on the car, and the marketing campaign is the engine. Agility is the steering wheel.
By tracking performance, campaigns can be tweaked and optimized based on what is working and what is not working. Financial institutions should be following response rates from the campaigns and the cost per acquisition. These metrics should guide campaign optimizations.
Eliminate guesswork from the strategy
Spending marketing dollars simply to retain unprofitable customers is not ideal, and neither is cross-selling additional products to a highly profitable customer who is not interested. At worst, an irrelevant offer may drive a customer to a competitor.
Working with a partner who has deep expertise in both data analytics and targeted multi-channel marketing eliminates the guesswork from your deposit acquisition campaigns. The financial institutions that prioritize data maturity and market awareness will be positioned for profitability in any economic climate.
Bryan Peckinpaugh is SVP at Baker Hill.
