How This Cohort of Banks Mastered Deposit Growth

As financial institutions prioritize attracting deposits, they need to ensure they are faster at gathering funding than they lose it to rate competition. It turns out that those institutions that have grown deposits during four quarters of brutal rate increases for the balance sheet, have something in common: They’ve used digital account opening to remove friction from funds coming in the door.

Three minutes. That’s how long it takes today for institutions that have invested in technology to open a deposit account. And we’re not talking about large, national brands; 117-year-old banks like Midwest BankCentre with less than $3 billion in assets sport that time.

The St. Louis, Miss.-based bank joined 166 banks and credit unions that have grown deposits for four quarters straight, according to analysis published by Tristan Green, a director for Cornerstone’s Research and Fintech Advisory practice.

He called the group the “4Q Club.”

Midwest BankCentre had one important thing in common with most of the institutions studied by Cornerstone: “About 81% of banks and 100% of credit unions [in the Q4 Club] have a digital account opening solution (DAO) in place,” Green said. “But, for the industry as a whole, only 43% of banks and 48% of credit unions have a DAO solution.”

One year after Midwest BankCentre launched its digital branch, Rising Bank, raised $100 million in high-yield savings and CDs to replace wholesale funding with core deposits, according to results reported by MANTL. The bank raised $200 million by the end of the second year. With application times of fewer than 3 minutes and a 48% average conversion rate from lead to application. ”

“The launch of Rising Bank resulted in the same deposit growth as building 10 new branches,” says Dale Oberkfell, former president at Midwest BankCentre.

a screenshot of the homepage of the rising bank website

Removing Friction from the Account Opening Process

Consider the experience provided to consumers in e-commerce and the successes of banks like Midwest BankCentre come into focus. People looking for a new banking relationship gravitated towards ease and opened an account so smoothly — similar to Amazon’s “Buy Now” button —  that other options hardly received consideration.

“Consumers expect the same level of user experience in every product they interact with, irrespective of the industry,” says Rob Heidenreich, vice president of global sales and partnerships at Loqate, a global digital identity and fraud solutions company that provides a standardized global address and identity verification solution to financial institutions.

Dig deeper: How Banks Can Turn Fraud Worries Into a CX Opportunity

“As consumers discover fintech-powered experiences in financial services, an improved experience from incumbents isn’t just a strategy, but a mandate,” Heidenreich says.

That mandate comes home to depositors’ choice of institution because failed conversions online have a dramatic result. About 47% of consumers surveyed said they would abandon a brand after two negative digital interactions, according to a study by IDology on fintech.

Companies that create an optimized and secure user experience will continue to stand out above the rest,” Heidenreich says.

How to Reduce the Tension between Fraud, Security and Friction

Every additional step or delay in the account opening process, from uploading documents to entering an address to slow load times, frustrates depositors. Banking executives don’t want slow processes either. They just want to protect their depositors and their institutions from fraud. The faster they transact, the less time they have to manage risk.

One way to ease the tension is to remove friction and frustration from as many simple steps as possible. Address verification is an attainable candidate, Heidenreich says.

“If you have clean, accurate, and properly structured data captured on input, it improves data integration, matching, and quality,” he said. “This resolves differences in data formats and varying address data standards. And, it can improve address accuracy by 7% in the U.S. and up to 47% internationally.”

When the account opening process automates and validates the address entered by the potential depositor quickly, with fewer errors, and with fewer occasions where consumers receive the dreaded “Thank you for your application! We’ll get back to you in 1-2 business days” or the “Please contact customer service” screen. With data and technology available today, addresses and identity verification need not cause friction for gathering funding.

Addressing the 2023 Funding Strain

Nearly a quarter of financial institutions surveyed in 2022 expected to select a new app for digital account opening, according to Cornerstone’s 2023 “What’s Going On in Banking” report. And then only 10% actually did.

The same survey cites a huge surge in executives who list deposits as a high priority as the cost of funds at banks now reaches 2.18%, up from 0.59% a year ago.

“As consumers discover fintech-powered experiences in financial services, an improved experience from incumbents isn’t just a strategy, but a mandate.”

— Rob Heidenreich, Loqate

72% of banks now prioritize gathering small business deposits, up from 41% in 2022. And 70% of credit union leaders say they now prioritize retail deposits, according to Cornerstone, and that’s up from 18% in 2022.

If banks and credit unions want to reach those goals, removing friction for depositors is critical. And, as the Q4 Club shows, investment in DOA solutions can pay off.

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Fraud and Friction Reduction: An Opportunity for Global Banking

Risk management can be more difficult for international payments and transfers. Cross-border payments are becoming more common, even for small businesses that realize they can operate in a global economy. The Clearing House, Swift, and EBA Clearing announced a pilot program of immediate cross-border payments in late 2022, promising even easier cross-border transactions.

However, fraudsters also commonly operate internationally, complicating the process for banks and credit unions managing regulatory requirements that they “know their customer” and monitor for suspicious activity.

“People can think ‘it’s an address, what’s the big deal,’ but if you get out of the 15 countries with strong postal authorities, an address is a description of a location,” said Justin Duling, commercial director at Loqate. “Curating and formatting the data in a way that a local would describe is a huge challenge.”

A customer in Ireland, for example, might have a central point of collection for their mail but live somewhere else. “If they sign up for a banking payment application, they could get declined for an account because the company cannot match their address,” Duling says. “We’ll figure out how their address is described and make that into a record to make a better match for banking providers wanting to process that transaction.”

For cross-border payments, the ease of verifying recipient data could enhance institutions’ ability to reduce friction and prevent fraud. With proper identification of red flags, fraudulent transactions could be stopped in real-time — while enabling legitimate account holders to complete cross-border payments quickly. In that lies a possible competitive advantage for institutions using technology: They can gain new relationships simply by removing friction.

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