Bank Deposit Growth Strategies to Offset Economic Headwinds

How can banks and credit unions expand deposit accounts to offset lower rates of personal savings and grow loan originations? Offering higher rates is not the only route. Making it easy and fast for customers to open accounts digitally is a key growth factor.
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It has been less than three years since the start of the Covid recession of 2020, both the deepest and the shortest U.S. recession since World War II. But the warning signs of another economic contraction are rapidly multiplying.

The war in Ukraine continues, as do global supply chain issues and inflationary pressures. As consumers dig deeper into their wallets to keep up with rising prices, the U.S. personal savings rate has fallen to 3.3%, the lowest level since the Great Recession. Even absent an official recession designation, the signs are ominous.

Americans had only $626 billion in personal savings in the third quarter of 2022, a precipitous drop from the $1.41 trillion they had on hand in the second quarter of 2019, according to the Federal Reserve Bank of St. Louis.

If the reduced level of household savings means retail account holders have lower deposit balances in a financial institution, its lending authority would likely diminish. That means the institution wouldn’t be able to originate as many loans, and as existing assets run off over time, its ability generate interest income could suffer.

Digital Account Opening As a Growth Tool

One of the best strategies for banks and credit unions to effectively surf these choppy economic waters is to grow the total number of deposit accounts to offset the overall lower savings rate and maintain the ability to both originate loans and cover any default losses as more account holders face financial struggles. When it comes to deposit accounts, there really is strength in numbers. A good way to quickly ramp up deposits is to offer consumers fast, safe and frictionless digital account opening.

“Bracing for a looming recession, financial institutions find themselves in desperate need to grow deposits, but oftentimes lack an end-to-end digital account opening process equipped to prevent new forms of fraud,” says Har Rai Khalsa, VP and General Manager of Digital Account Opening & Loan Origination at Alkami. “By embracing solutions that eliminate in-branch barriers and time-intensive, manual processes, banks and credit unions can seamlessly open new accounts and bolster their lending limits.”

Less Friction, Less Abandonment:

When consumers can set up an account in minutes on their phone or laptop, they are less likely to abandon the process than if they encounter the friction of long forms, document scans or in-branch drop-offs.

Banks and credit unions using a cloud-based, mobile-first platform can more easily attract consumers to their sites and open new accounts for them online in three minutes or less. A key component of that user experience comes from a non-documentary customer identification program (CIP).

Legacy account opening systems usually have a lot of form fields that applicants must fill out before uploading identification documents or even verifying their identities in-branch. A non-documentary CIP that eliminates all non-relevant fields from the application and validates the applicant’s information against third-party identity verification providers can decrease friction and increase conversion rates.

The Potential of Digital Business Account Opening

Another way that banks and credit unions can successfully navigate a recession is by expanding their digital account opening program to businesses. At the beginning of 2022, only 4% of financial institutions offered digital business account opening, according to a report from Cornerstone Advisors.

One big reason: Most business account opening solutions are tailored to larger businesses with more complex account profiles, forcing even small business owners to submit lengthy, in-branch applications. This creates tremendous barriers to entry and immediately puts traditional financial institutions with legacy systems at a disadvantage.

But with the growth of the gig economy — and the 5.4 million Americans who started their own small businesses in 2021, according to the White House — there is a huge opportunity for traditional banks and credit unions to bring in smaller business accounts via streamlined digital account opening processes that give owners an experience similar to what they are used to seeing in their personal accounts.

Embracing this digital-first — and increasingly, mobile-first — mindset for both retail and business account opening will help traditional institutions grow deposits quickly and position them to better compete against the neobanks that have been gobbling up market share in recent years with a similar streamlined approach.

Benefits of Deposit Diversification

The diversification from retail account opening into small and mid-size business account opening and loan origination will be especially helpful to banks and credit unions in the case of a recession that hits one sector of account holders harder than another.

For instance, there could easily be a deep consumer recession in the next 24 to 36 months, but the business sector might continue seeing growth during that period. If financial institutions have enough business deposits on their balance sheet — accounts that generate interchange income from debit card swipes, as well as interest income from loans and credit cards — that could help offset consumer defaults and other challenges.

Whatever mix of products and account types a financial institution targets, the time is now to build up deposits by optimizing the digital account opening process with the help of a partner. By executing well on digital account opening, banks and credit unions can ensure their balance sheets will be primed for growth once the economy gets back on firm footing.

As a cloud-based digital banking solutions provider, Alkami Technology helps clients transform through retail and business banking, digital account opening and loan origination, multi-payment fraud prevention, and data analytics and engagement solutions.

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