Unconventional Wisdom Needed to Grow Core Deposits

Community bankers face countless challenges — intense deposit and credit competition, changing demographics, complicated technology, and regulatory obligations, to name just a few.

One of the most daunting challenges, however, is one that is often overlooked: “conventional wisdom.”

Conventional wisdom is our adherence to accepted norms and common practices. It seems like the safe, dependable direction whenever we’re confronted with difficult questions and complicated options.

However, relying on conventional wisdom often discourages critical thinking and diminishes creative energy. This applies to any business in every industry, but it is particularly true for community banks and credit unions.

Today, banking executives seeking to profitably grow their branch networks and successfully serve the broader community are critically evaluating new solutions and creatively employing them.

Banking is a business of high fixed costs, while there are low marginal costs for the next customer with relatively high additional revenues. Attracting more customers is profitable, and most banking providers have tremendous capacity to accommodate more business. So why don’t all banks and credit unions focus on attracting as many customers as possible? Could it be “conventional wisdom”?

Because of “conventional wisdom”, many banking providers embrace a fully allocated cost model which estimates each customer costs the bank approximately $200-500 per year — regardless of whether they are the first customer in the door or the 100,000th customer.

Accepting this cost model leads to a whole cascading series of flawed assumptions:

  • Marketing – the bank must seek the perfect customer
  • Products – only profitable customers are welcome
  • Fees – an aggressive fee structure is required to offset costs

Sadly, this conventional wisdom is hindering the growth of community banks and credit unions, limiting their capacity.

Critically evaluating new solutions and deploying them creatively can enable community banks and credit unions to double their new customer acquisition. But first, they must accept these two realities:

(1) The true value of each PFI relationship is between $300 to $500 per year, including deposits, loans and non-interest income.

(2) The marginal costs of each customer is between $30 to $50 per year — issuing a debit card, mailing a statement, data processing and potential write-offs from overdrafts on some (assuming you aren’t building any new branches).

The typical institution has the capacity to serve many more customers — customers that look just like the customers you already serve.

It’s time we throw out “conventional wisdom” and start using an omni-channel marketing approach to blend big data with new digital technology and proven fundamentals. The result is new customers who live near your branches and own businesses near your branches, in addition to those who work, shop, dine and drive by your network of locations.

But caution! When you effectively deploy omni-channel marketing strategies, twice as many prospects will be walking in your doors – are your people, products, policies and procedures aligned to win them? If not, you might as well plan your own funeral.

Our industry must bury its reliance on “conventional wisdom;” we must abandon our dependence on out-of-date “banker think.” When banks begin executing an omni-channel approach to marketing – big data, digital solutions, geographic relevancy – and align people, products, policies and procedures – results follow: (1) doubling customer acquisition, and (2) increasing profitability.

Although conventional wisdom commonly warns of the death of retail banking, community banking is alive and well… but could be doing much better.

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