Deposit growth is hard, and it’s only going to continue getting harder. Non-interest-bearing deposits at banks and savings institutions declined by 2.3% in the third quarter of 2018, the largest quarterly decline since 2013, according to FDIC.
As the frenzied race for deposits continues, it won’t be long before financial institutions feel the pressure to start paying interest on business checking — something they’ve preferred to avoid for years. Not so long ago, the abundance of business checking accounts — a low-cost source of fuel for lending — was a welcome shot in the arm for boosting an institution’s profitability.
Can this be forestalled? With such intense competition for deposits and profitability erosion looming, banks and credit unions should be looking for an edge. They may find that edge in becoming more aggressive by sending someone to seek them out deposit relationships from businesses instead of waiting for these new accounts to just waltz in through the front door.
Business Development Officers (BDOs) could provide the next best method for capturing new banking relationships and with it those elusive — but critical — noninterest-bearing deposits. And never discount the power of the human touch in fostering long-term customer relationships.
Deposit-side BDOs can be a more effective strategy for developing long-term relationships than the traditional “hot money” enticements of boosting interest rates or offering big sign-up cash incentives. It’s not uncommon to see deposit BDOs add 5% or more annually to your deposit base.
To make this tactic work for your institution, you must recruit deposit BDOs with the right skills, and give them appropriate support, and some flexibility, in approaching the role. In some cases, management must make some choices before implementing this tool.
1. Value the relationships the BDO brings to the role.
Bank and credit union executives using deposit BDOs say that the critical skills needed for the position include high motivation, strong interpersonal talents, the ability to articulate the institution’s products and brand, and having connections in the community.
The most important qualification is having community connections. For example, one financial institution’s star deposit BDO is a former real estate broker who has established relationships with local homebuilders, title companies, and other movers and shakers.
2. Give them rate flexibility — up to a point.
While most banks and credit unions don’t give inexperienced BDOs much leeway to alter deposit rates, you may want to give those experienced BDOs some flexibility to negotiate rates based on the size and profitability of a relationship.
However, caution and oversight by management and the board’s Asset Liability Committee is imperative, as BDOs always try to find ways to outperform goals — especially when commissions are involved.
3. Use deposit BDOs in multiple roles.
Some institutions, like River City Bank in California, are using their deposit BDOs in a dual role, serving as a generator of their cash management business, or other related services, in addition to deposits.
For a dual role, hire someone with more industry or technology experience. Since some BDOs are so well known in the community, they might also serve as relationship managers for certain accounts, especially those high-value accounts where there’s an opportunity to expand relationships.
4. Dedicate your deposit BDO’s efforts to a specific market segment.
As opposed to the strategy in the previous step, depending on circumstances, using a BDO in a narrow role may be more appropriate. A private bank might use a deposit BDO solely to solicit deposits from high net worth individuals or foundations, whereas a commercially focused bank or credit union may be more interested in noninterest-bearing deposits from the business sector.
5. Use deposit BDOs to build visibility in your community.
A deposit BDO is often well-suited to participate in community events or in local business networking groups. One financial institution CEO frequently uses his senior deposit BDO to fill in at events he cannot personally attend. Those networking groups often become one of the deposit BDO’s best sources for new business.
6. Weigh the long-term benefits of a BDO when setting compensation.
Deposit BDO compensation will vary based on the actual role created for the individual. Most financial institutions — but not all— pay a base salary and commission.
An effective BDO should establish “sticky” relationships that offset their compensation. Using a BDO may cost more up-front, but the position should more than pay for itself over time if the relationships continue.
Weigh the cost of BDOs against, or in concert with, alternative and additional methods for finding funding, which might include:
- Hybrid deposit vehicles
- No-fee checking
- Online account opening and other service delivery enhancements
- Identifying ideal target markets via data analysis
- Better branding
- More aggressive use of social media
7. No matter the compensation model, set goals for your deposit BDO.
Often, these goals include cross-selling of loans that directly result from their efforts. Some banks and credit unions will give their BDO credit for deposit generation only if the customer or member deposit exceeds a given dollar threshold. Additionally, both deposit retention and a customer’s overall profitability are often factored into the compensation plan.
8. Create the right reporting structure.
The size of your institution will dictate how you structure the deposit BDO reporting channel. A small bank or credit union with a limited footprint may have the BDO report directly to the President or CFO, whereas a larger institution might prefer to utilize mid-level or senior managers to direct deposit BDO activity. In any event, the executive team will want to pay close attention to the efficiency of deposit BDOs and make adjustments to the quality and quantity of BDOs deployed.