Bank deposits have been declining, dropping 2.9% in the second quarter of 2018, according to S&P Global Market Intelligence. This decline happened while the economy notched a sizzling 4.2% advance in GDP, fueled by strong consumer spending and continued business investment.
While the catalyst for deposit runoff is tied to the robust economy, the deposit problem isn’t universal among all financial institutions. Megabanks like JPMorgan Chase and Wells Fargo say they are successfully able to recapture outgoing deposits with in-house managed accounts. But smaller community banks that generally lack wealth management capabilities can’t benefit from such disintermediation.
So where are community banks’ deposits going? It’s likely that they’ve been absorbed by external investment providers, retailers, and business expenditures. Some may be going to credit unions, too. These institutions saw a 5.4% increase in deposits through the end of the second quarter, according to National Credit Union Administration reports.
If the economy continues to hum along, deposits may shrink even further. With increased competition, everyone — banks and credit unions alike — that rely on deposit funding needs fresh strategies to win new depositors and new deposits. Here are six ideas:
1. Start Fishing in the Right Pond
Your deposit strategy should rely on “fishing where the fish are,” so get to know which ponds will yield the biggest catch. You already have some of this intelligence.
Gather data and perform analytics on your existing deposit holders to determine their demographics, preferences, and profitability. Design profiles of who is already attracted to your institution, and for what reasons. Determine if those depositors are hyper-sensitive to interest rates.
This analysis will not only enable you to make adjustments to your marketing efforts, but you’ll also recognize which deposit offerings to vigorously promote.
2. Don’t Just Promote —Tell a Compelling Story
Every institution has something distinctive about it that can differentiate its brand from extensive competition. Such factors can include a unique delivery platform, a specialized array of customer offerings, or perhaps some geographic advantage.
What sets your institution apart?
Refine and step up your brand messaging in a way that sets your institution apart. Maybe your differentiator is simply that you are local, which allows you to better understand your community and to build your hometown economy.
Remember, consumers shop at specific retail stores because they relate to those stores’ merchandise, pricing, terms, and values — as well as the perceived value.
The most successful retail brands tell a story to hook their customers. Your institution must do the same to appeal to consumers you want to bring into the fold.
3. Exploit Digital and Social Channels
Your institution’s staff doesn’t include advertising executives and you may not employ any search engine optimization (SEO) mavens. You may lack deep expertise with today’s digital world and marketing platforms.
But there are plenty of third-party vendors that do have these skills. You may also have employees who truly get digital marketing. Engage this expertise, and you’ll have a better chance of winning deposits.
A local SEO strategy can optimize your institution’s visibility in “near me” and other search results tremendously. Online reinforcement from multiple digital channels can increase deposits, so implement a variety of placement and advertising strategies to create top-of-mind awareness among consumer prospects. For example, you can employ retargeting which sends online ads directly to prospects who have engaged with your website.
Two other items to try: (1) Research how you can incorporate paid search options, and (2) explore adding gamification to your mobile app to encourage savings.
4. Explore Online Account Harvesting
The definition of “community” in financial services has broadened to include consumers who relate to your business model or particular expertise, rather than your geography. One institution known for its liberal social stance has, for example, been reaching out nationally to prospects with similar political leanings.
‘Convenience’ doesn’t necessarily mean having a branch in your potential depositor’s neighborhood.
These potential customers can be located anywhere, so consider expanding your geographic reach virtually and harvesting online deposits outside your traditional physical footprint.
But pursue this strategy carefully, so you don’t spin your wheels. Simply deciding to “go national” by accepting online account openings can be fraught with compliance challenges. Even if your institution has strategically targeted non-local deposit niches, you’ll need to pay attention to regulatory issues and thoroughly address Know Your Customer and other anti-money laundering compliance requirements. You’ll need access to technology and compliance resources to be successful.
Convenience has always driven deposit acquisition. But today’s definition of convenience doesn’t necessarily mean having a branch in the potential depositor’s neighborhood. Convenience is increasingly defined by the ease of online account opening and online transactional ability — no matter where the customer lives.
5. Consider Hybrid Deposit Offerings
While consumers typically like the higher interest rates associated with time deposits, they may hesitate to use them when interest rates are rising. They resist getting locked in.
To overcome such reluctance and attract new deposits, create hybrid time deposits that allow depositors to bump up their rate once or twice over the duration of the term.
Again, be aware of compliance details. If you offer a hybrid product, your compliance officer will need to properly address regulatory considerations and disclosures.
6. Engage Employees and Board Members To Source Deposits
Your staff and your board members are deeply invested in the success of your institution. They are also your most knowledgeable and passionate advocates. Train them in cross-selling techniques and give them goals for deposit solicitation.
You may want to consider employee cash incentives for successful deposit generation. And of course, encourage lenders to invite their borrowers to maintain a healthy deposit relationship with your institution.
These are just a few strategies that can help generate new deposits. Our flourishing economy and rising interest rates will continue to nudge existing depositors to find alternative ways of maximizing return on their cash reserves. You need to compete for those deposits available for capture.
Drew Carey once observed that “some people don’t like competition because it makes them work harder, better.” Make sure he wasn’t talking about your executive team.