Bank and credit union marketers have a tough job, surrounded by a fluid macroeconomic environment that forces them to be both strategically proactive and reactive. Their responsibility entails a combination of keeping a pulse on the market, both the economy and competition, while balancing the changing behaviors of all the generations who are both current account holders and those a bank or credit union is trying to attract.
According to a recent research study conducted by Alkami in partnership with The Center for Generational Kinetics, the number and type of financial products and services that Americans have varies based on the generation and primary financial provider. This finding supports that each generation has distinct banking preferences and habits, making the task of appealing to all demographics simultaneously complex and demanding.
As financial institution marketers navigate external pressures and shifts in account holder banking preferences related to products and digital channels, the use of big data has become an industry buzzword and “go-to” solution.
According to The Financial Brand, chief marketing officers across the industry have identified revenue growth as their top mission-critical priority for their department over the next 12-18 months. To execute on this priority, marketers need to have a data-driven strategy focused on the right tactics, channels and messaging that will deliver effective campaigns to influence engagement and product adoption. This strategy starts with transaction data as the catalyst.
A transaction occurs when funds move in or out of an account. The important intel comes from all the information surrounding a transaction from date, time, location, to purchase type, merchant type, total spent, payment type used, channel used and more. Banks and credit unions are uniquely positioned to capitalize on the usage of this type of data for the following reasons:
- All banks and credit unions have this data in their ecosystem
- This data has no biases
- Does not include personal identifiable information
- Provides the behaviors of account holders across the history of the relationship with the financial institution
- Money movement is captured when it’s transferred to a competing institution
- Can inform strategies related to business decisions, marketing campaigns, product gaps and innovation
Transaction data is the richest data there is, embedded with behavioral insights and intent indicators that empower bank and credit union marketers to craft messaging and campaigns that speak directly on an individualized level, while being relevant to the financial need of the account holder or prospect.
Check out Alkami’s Telemetry Data Report here to learn more.
The Interest Rate Environment
In a Banking Transformed podcast that highlighted Alkami’s 2024 State of the Industry Telemetry Report, host Jim Marous discussed with Mark Leher, Director, Product Management for Akami and Jim Perry, Senior Strategist at Market Insights, multiple consumer trends and the impact related to the housing market, auto loans, deposit accounts and credit products. Financial institutions have also been affected by the high interest rate environment, and banks and credit unions need to diligently look at their own internal transaction data to get a focused understanding of how macro trends are influencing account holders’ financial behaviors, which can fuel strategic actions within the overall business.
Below are the highlighted findings from the report:
Home equity line of credit (HELOC) originations peaked in 2022, while home buyers and renters navigate the housing market. The impact has affected financial institutions where there has been a 72.5% drop in mortgage originations from 2020 to 2023 and a 24.2% increase in HELOC originations over the same timeframe.
Supply chain challenges and rising interest rates put pressure on auto loans. During the pandemic and immediately following, supply chain complications in addition to rising interest rates resulted in car buyers paying 32.5% to 57.1% more per month for a used or new auto loan, respectively, from 2019 to 2023.
With almost 90% of certificate of deposit (CD) balances scheduled to expire at the end of 2024, the battle to grab these deposits is highly competitive. Competition for CDs resulted in an 11.7x premium in interest rates for a 24-month CD opened in 2023 versus 2021. Financial institutions need to develop strategies to retain these fleeting accounts, as 87.7% of CD balances held at the end of Q4 2023 will mature in Q4 2024.
Interested in learning more?
- Does Rapid Growth in Home Equity Credit Signal a Coming Repeat of the 2008 Meltdown?
- Rate Wars: How Digital Banks Keep Pushing CDs Higher
- How Higher Interest Rates Flipped Small Business Credit Needs
Consumer deposit balances in mixed products are higher today than they were in 2019. Average consumer deposit balances in checking, savings, money market, and CDs are higher today than they were in 2019, but balances appear to be eroding due to consumers facing high prices. The mix of CDs as a percent of deposit accounts has increased at the expense of money market accounts.
Consumers are not adding credit cards, but usage of their current cards is up. Since the pandemic, the average monthly payment made on credit cards has been climbing, and by 2023, that payment reached $2,376, a 19% increase over pre-pandemic levels. While consumers are paying more towards their monthly bill, the number of payments is flat, suggesting no new cards are being added to their wallets.
Overall, rising prices have had a significant impact on the market, lowering consumer purchasing power, therefore creating challenges and pressures for both them and financial institutions. Recent research commissioned by Alkami shows that 67% of digital banking Americans say the rising interest rate environment has had a significant impact on their standard of living and 59% are living paycheck to paycheck. Banks and credit unions are poised with the opportunity to create a path of differentiation leveraging transaction data and insights to build individualized offers, transform strategic decision-making into knowledge-based and make messaging and engagements relevant for their account holders’ financial journey.
What Does This Mean for Regional Community Financial Institutions (RCFIs)?
RCFIs are tasked with playing a pivotal role in supporting their account holders through financial challenges. The same recent research noted above commissioned by Alkami reveals that 64% of Americans using digital banking feel their financial providers often overlook their needs. Banks and credit unions can flip this narrative by engaging with their diverse account holders, catering to their unique financial demands and using transaction data to accurately understand their individual spend and money movement behaviors. A strategy that leverages data across the entire financial institution’s business operations, including digital banking, can provide a competitive advantage for capturing account holders or new consumers with content or products/services that are relevant to them.
Based on the consumer behaviors and trends revealed in Alkami’s 2024 State of the Industry Telemetry Report, RCFIs can execute the below strategies powered by the insights derived from transaction data:
- Identify a targeted audience segmented from your account holder database that:
- Are paying mortgage loans to competitive institutions
- Have an expiring certificate of deposit product
- Are candidates for a HELOC product
- Are underutilizing their current HELOC
- Currently have a mortgage with a competing institution
- Can benefit from high yield savings to offer consumers flexibility, instead of being locked into a term with CDs
- RCFIs should be ready to offer refinancing loans and offer rate discounts to those who move additional funds or move their direct deposit into the institution in the event the Federal Reserve starts to lower interest rates.
- Encourage consumers to set up an automatic transfer to a savings or investment product each month with the money from a previous auto loan payment since consumers are keeping their cars for a longer period of time.
- RCFIs have an opportunity to recommend the institution’s own debit or credit card for consolidated spending, as well as educate about the benefits and risks of buy now pay later (BNPL).
- Provide financial wellness assistance.
- Monitoring changes in spending behavior so the bank or credit union can actively reach out to at-risk account holders with retention offers before they decide to leave.
Evolving the digital banking platform from a mere service channel to an integrated digital sales and service hub is essential for delivering personalized banking at scale, paving the way for the “data-informed digital banker” of the future.
The Data-Informed Digital Banker
A recent research study, the Retail Digital Sales & Service Maturity Model, conducted by Alkami in partnership with Jim Marous and Emerald Research Group surveyed 215 financial institutions across the U.S. and found the most digitally mature institutions in the market are data-driven – they have a data modernization strategy reporting up to twice the annual revenue growth as the least advanced.
Transaction data found within a financial institution’s ecosystem is the foundation for building a data-driven strategy that will be a pathway to digital maturity, and support an array of business decisions related to combating the fluid interest rate market, product innovation and marketing tactics. Using the insights derived from this data and activating it across a financial institution’s channels, breeds the data-informed digital banker, who is poised to deliver individualized banking at scale, and be data-rich to pivot in a fluid economic market when consumers behaviors and demands change.