Behavioral Economics for Banks: Big Results from Small CX Moments
Kasasa’s Gabriel Krajicek explains how community banks can drive growth through strategic product design, emphasizing how small behavioral nudges like a 10-swipe debit card requirement can drive average usage to 30 swipes and significantly increase deposit balances.
By Justin Estes, Contributor at The Financial Brand
Community banks often compete with larger institutions by emphasizing personal relationships and customer service. But in today’s digital environment, technology plays an increasingly crucial role in how these banks deliver on their promises.
In a recent interview with The Financial Brand, Gabriel Krajicek, CEO of Kasasa, discussed how smaller financial institutions can use behavioral economics and strategic technology adoption to drive growth while maintaining their local touch.
Q: How are community banks using technology to enhance rather than replace relationships with their customers?
Gabriel Krajicek: It’s pretty early on to answer that question. A lot of community banks have not really jumped in with both feet. A few are doing things like AI-driven chatbots, which are just kind of variations of the theme they already had, which might have been essentially a glorified FAQ bot that was able now to be a little bit more conversant.
At a recent conference, I was speaking to a group of CEOs about strategic questions on where the market was going, and one of the things that came up was AI. Every single one of them was very interested and is actively looking in ways that they can apply it to their institution. But it’s mostly very calculated and very slow. It’s definitely an industry where there’s more to be gained by making fewer mistakes than there is to be gained by being the rock star who figured out AI the coolest way first.
One interesting example that bridges technology and relationships is a company called Finsync. They’ve built an AI-driven entrepreneur’s assistant. Let’s say you want to start a restaurant in a certain town and need help thinking through your whole business model. They have an AI that can walk you through that, and community banks can offer this tool to small businesses.
Then, they can follow up with a personal call to people who created business plans and say, "Hey, I saw you created your flower shop plan. We’d love to talk to you about that and make sure that if you ever get it rolling, we’re your bank of choice."
Q: What’s your advice for smaller banks adopting AI without exposing themselves to unnecessary risk?
Krajicek: The real-world answer to the question is, the banks are gonna wait and see. As a rule, they’re gonna move slower than everybody else. Wait and see what the big guys do. And then they’ll implement stuff that feels like it’s fully enterprise-grade and battle-ready and has all the risk taken out of it because they just can’t afford a misstep.
It could be a marketing piece that creates an unfair, deceptive acts and practices violation, or they might want to use AI in credit scoring models but need to make sure it’s not accidentally redlining, which we’ve seen in some inadvertent diversity issues where the AI is basically being racist.
If they don’t have the resources to dive right in, if they don’t have anyone on the team that understands AI, my recommendation would be to hire that person or hire that partner that’s gonna help you navigate this because every single thing in the world is going to be going to AI. Inside of a strategically relevant time horizon – let’s say a decade – there will be very few functions that cannot be performed by artificial intelligence.
Having a risk management plan on what that means for your institution, or at least beginning to have the dialogue now, is an urgent thing. But they also should not be so concerned that they don’t treat this as an urgent thing to figure out because it is.
Want more insights like this? Check out Kasasa’s content portal: Low-Cost Deposit Strategies
The Psychology Behind Successful Banking Products
Q: How does consumer psychology factor into your checking account strategy?
Krajicek: That’s everything. That really makes an elegant product offering – not just putting the lightest amount of leverage in just the right spot to move the outcome as far as you possibly can, with as little friction as possible.
Where I often see rewards programs when we come in to either take one over for an FI (financial institution) that was trying to do it themselves, or I’m just in the market looking at cool stuff – the thing that I’ve seen most frequently gotten wrong is it’s overly complicated. They’re trying to pound their entire desired outcome into the program design and incentivize every single movement in the chain of movements that they wish would occur.
What we did, on the other hand, was find the leverage points that daisy chain to other really desirable outcomes. Direct deposit is a really obvious one. If you get direct deposit, then all kinds of other things are likely to happen.
Your balances go up. Cross-sale to other accounts gets easier. You’re more likely to be the first stop for an additional loan. Attrition goes dramatically down, so you don’t need to require all kinds of other things.
Deposit Growth Strategies for Smaller Institutions
Q: How have smaller institutions grown using your products?
Krajicek: The smallest institutions when we started were about $50 million or so, very small. I just got off the phone with our chief sales officer, and he was in a community bank earlier this week. They’ve been a client for 13 years. They were $250 million when they started. They’re about $1.3 billion right now.
The CEO said, "Y’all have been a huge chunk of our growth, that y’all have been our conquest growth strategy over that whole time and a big chunk of why we’ve done so well." We’re driving an unfair share of core deposits into community FIs. We can drive CD-style volumes of core deposits, but it’s not like a nitrous boost. If you’re a $250 million community bank, we’re not going to bring you $100 million of deposits the next year. That’s just ridiculous.
What we can do is take all the accounts that you’re opening right now, help you open more accounts – let’s try to get 10% more, 20% more by doing a few things a little bit better – and, more importantly, get the average balances in those consumers that open accounts to go up a lot. The average balance in our high-yield checking account is around $10,000 nationwide. The average balance in typical plain Jane, no-frills free checking varies by region, but it’s usually around $2,500. So, if you can get a 4-5x increase in the average balance per consumer, you don’t have to get tons more consumers.
You have to do that consistently year over year, and you end up with a very stable, rate-insensitive base of consumers that really do bank with you and fund a much lower-cost balance sheet growth compared to a CD alternative.
Q: What makes deposit accounts "rate insensitive" during changing economic conditions?
Krajicek: The rate definitely impacts the number of accounts that you open. There are three buckets of ways to think about rates and other components of impact.
One is the higher the rate, the more accounts you’re going to open. That’s a given. The rate goes up to what we call a cap – the tier that the promoted rate is paid up to. So, it is about 5% up to $25,000. That number, the $25,000 cap, is going to impact the average balance. If you put the cap at $5,000, your average balance is right around $5,000. You raise the cap to $50,000, and the average balance moves up to almost $20,000.
The third is what happens to all the deposits that you get when rates change down the road. This is where I’ll say they’re rate insensitive. That doesn’t mean they don’t have any rate awareness. If they came in at 6% and you drop it to 2%, they will react. You’ll bleed deposits.
But if the market goes to 5%, let’s say you went out at 6% when billboards for CDs were at 5.5%, and now CDs are at 4.5% – by your prior logic, you should be at 5% – I would say you could go to 4% and nobody would leave. There’d be almost no deposit attrition.
The reason is that in a checking account when the average balance is around $10,000, optimizing that last 100 basis points of yield just isn’t worth it.
No one is going to unplug their direct deposit, learn a new online banking system, get a new debit card to be top of their wallet, and move all their bill pays over to optimize on a $10,000 investment when 4% is still a damn good rate on a checking account.
Innovative Loan Products
Q: Can you explain how your "Take Back Loan" works and why consumers respond to it?
Krajicek: It’s my favorite product by far. It’s a loan calculator that is baked into online banking. When you log into online banking, instead of just seeing your balance, you’ll see this loan calculator-looking screen, and it has the ability for you to change your payment each month.
So your minimum payment is $500, but you can play with it and say, "What’s my loan look like if I pay $700 or $1,000?" and see how much time and interest you’ll save. But here’s what’s cool – it is the payment engine for the loan. So you can actually set your payment to $700.
Let’s use the example of a $500 payment minimum, and you’re paying $700. So, an extra $200. That extra $200 gets put into a take-back balance every single month, and that accrues, and you can take it back at any time with no penalty and no change in rate.
This has a 70% net promoter score. The reason consumers love it so much is it’s like you can get out of debt with reckless abandon. When we built the product, we did research on what people want out of debt, and the answer was: I want a low rate, I want a low payment, and I want out of debt.
Q: What problem did you identify in traditional loans that led to this innovation?
Krajicek: We asked consumers, "How many of you have enough liquidity to pay a little extra on your loan, and just choose not to, for whatever reason?" And it was 55%. But prepayment rates at most institutions are single digits.
So we asked, "Why is it that 55% of people want to get out of debt, have the liquidity to do it, and they’re not doing it?" They said, "Because I’m afraid of a future liquidity event that would make me regret that decision."
It makes perfect sense. Why would I pay my car off a little bit faster if I worry that I’m going to need that money and then I’m going to regret it? It’s the double whammy – I’m going to feel stupid for trying to do a good thing. And people actually expressed emotions of shame, like, "Why did I even try?"
When we went through COVID, we saw an over 400% increase in the take-back pullbacks at the beginning, and we also saw virtually no loan modifications from our loan portfolio during that same period. People were using the take-backs they had built up to get through their hard times, basically building shock absorbers into their own loans.
Marketing Financial Products Effectively
Q: How do you help community banks market effectively against larger competitors?
Krajicek: We have a complete asset library of everything they could possibly need for every media channel, whether it’s social, billboards, TV commercials, radio, print – everything. It can all be versioned, and it’s all digital. There are tons of different options, such as using the Kasasa brand name or calling it whatever they want and changing all the colors to make it more customized to their institution.
We also do a lot of work strategically with institutions to figure out what’s going to be the most effective marketing approach. Some of our newer capabilities involve geolocation targeting, where you can see how many people are driving to and from their branches, what neighborhoods they’re coming from, and what types of people they are – psychographic and demographic profiling.
Then, we map those consumers to what products we know they like, what types of marketing messages they respond to, and in what channels. We can help the institution build and deploy those different types of marketing campaigns, and we can do as much or as little as they want.
Q: What differentiates your approach from other vendors in the financial space?
Krajicek: Where our approach differs is that most vendors focus on one thing. There are a bunch of awesome vendors that do amazing things, but they often focus on the final mile of execution to productize the technology.
What we try to do is go into an institution, and instead of saying, "Hey, we sell software," we say, "We are going to sell the bottom line results you’re buying. We’re going to help you grow core deposits. The all-in cost is going to be this. We’re going to profit-guarantee it. And we’re going to take care of every failure point that we’ve learned over the years."
We’re essentially functioning like a product department. We’ve gone out and figured out what consumers really want. We’ve run these products enough times to know all the data on them, so we know what they’re going to do for your balance sheet and income statement. We can talk to your CFO about why this plan will work, but we’ve also got the marketing figured out for the CMO, the frontline training for the head of retail, and the compliance for all the products.
Going Forward
Community banks are uniquely positioned to leverage their personal relationships, but they must be strategic about how they adopt technology and build products. By applying behavioral economics principles – finding those small leverage points that create outsized results – these institutions can grow deposits, create loyal customers, and compete effectively against larger banks.
What makes this work so rewarding, according to Krajicek, is the challenge and creativity involved. "I love building these toys. I love being part of the team that tries to figure out a really difficult challenge," he explains. "We think like entrepreneurs in the seat, in the mind space of our clients. We’ve consistently been able to bring new things that people haven’t seen before. It’s something I’m real proud of."
Through innovative products like the Take Back Loan and high-yield checking accounts, community banks can deliver experiences that not only meet customer needs but actually improve their financial lives – a mission that continues to drive both Krajicek and the team at Kasasa as they look toward new innovations in 2025 and beyond.
