Personalization Didn’t Save Bank Deposits, But Product Customization Can
By Neil Stanley, Founder and Owner of The CorePoint
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Need to Know:
- Banks’ pandemic-era push to personalize messages improved engagement but didn’t meaningfully reduce deposit attrition because customers still chase higher yields, and competitors can easily copy marketing personalization.
- The “great deposit regression” reflects deposits flowing out of traditional bank products — especially savings and money market accounts — that fintech now makes easy to “rate-harvest” and into higher-yield, flexible alternatives like U.S. Treasuries.
- The durable fix isn’t better emails or apps alone; it’s deposit product customization (e.g., custom CD maturities, hybrid savings/CD structures, fair early-withdrawal terms, and daily CD market values) that matches how depositors actually want to save and invest.
Beginning in 2020, banking decided to embrace personalization. Fueled by societal separation during the COVID-19 pandemic, much of the industry discussion about engagement focused on how to deliver personalized messages at the right time, in the appropriate digital channel, and with the right content.
Helping people make informed decisions and feel more confident about their financial future is a worthwhile goal. But there’s one problem: Personalization does not appear to have made a dent in deposit attrition, nor did it overcome depositor desires for higher yields. A healthy portion of the industry invested in loyalty driven by personalization, but rising prices made its impact trivial. Instead of seeing deposit growth, the rollout of personalization corresponded with banks’ most significant deposit regression in their history.
Now, if you’re a banking executive, you likely read the above paragraph and thought, “Of course, nothing can keep a depositor from leaving if they just want the highest price, not even really effective messages.” If that describes you, read on; this article was written for you.
Personalized messaging has utility; it wasn’t a bad investment. But competitors can easily replicate it (fintechs were well ahead of banks in 2020 on this score), and thus it did not create durable differentiation. If banks want to retain and attract more deposits, they need to take personalization one step further: Personalize deposit products by customizing them.
Here’s why the data points to that conclusion, and how banks make product customization a reality.
What Great Deposit Regression?
Are bank deposits in a regression? A picture illustrates better than words.
Looking back at pre-2021 bank data, total deposits grew every year. Even during the pre-pandemic rate increases, while volumes were indeed affected, total bank deposits still rose. That’s not so today. All types of bank deposits have now shown that they may not grow. Even the most popular deposit product (interest-bearing deposits, also known as savings accounts) has not regained its 2021 high point.
Chart showing banking’s great deposit regression.
The Financial Brand has covered each element of this regression during the past year for each color line on this chart: interest-bearing non-maturing (savings accounts and money markets); non-interest-bearing non-maturing (checking accounts and treasury accounts), and time deposits.
Savings accounts and money markets have become a flight risk because fintech now automates depositors’ ability to rate-harvest. Tools now warm no-commitment deposits to levels unknown when banks were cash flush and interest rates were at near-zero. Savings accounts are a lovely product for managing interest expense when institutions expect rates to decline – so long as the balances don’t depart when the bank drops the rate.
Before the age of fintech, a depositor had to decide to move their money, log in, and execute an order (at a minimum). Savings accounts were more likely to be sleeping money before. Now, they can become hot money instantaneously even while the depositor is sleeping.
Growth in new non-interest-bearing accounts (checking accounts) has been dominated recently by two of the nation’s leading fintechs. Together, their DDA growth rate has outpaced that of the country’s largest bank by a factor of two, according to J.D. Power’s “Financial Services Churn Data and Analytics” study of 80,000 U.S. consumers.
Certificates of deposit were the first to fall in volume as banking disruption set in after the Great Recession. Their rigid structure constrained banks and depositors alike, reducing their share of bank deposits. Many executives declared the death of the CD when all their deposit products could decline for the same reason: rigidity.
What Do Depositors Want that Banks Don’t Have?
What’s rigid about bank deposit products? Take a look at household purchases of U.S. Treasuries during the past 25 years, and it paints a picture: They’ve gone through the roof, as reported by the Kansas City Federal Reserve Bank. What was “below zero” growth for households before 2008, according to the chart from the Board of Governors of the Federal Reserve System, is now growing greater than banks’ holdings of U.S. Treasuries.
What does this tell us about the entire bank deposit offering? Bank deposits aren’t growing, so the money must be moving somewhere. And, you probably guessed it, treasuries pay more, are tax-exempt, and can be sold – sometimes even for a gain. No deposit products do this. So treasuries receive favor in volume.
Institutions love their savings accounts. But if the problem were that depositors preferred a more liquid investment, we would see CD volumes shift to savings accounts, keeping funds within the banking system. We don’t see that behavior. The deposit volumes left, and they didn’t even go to the banking-as-a-service charters behind the fintechs.
As informed investors, executives know why this has happened. Does the bank invest in CDs, savings accounts, or money market accounts using its own capital? What does it buy when it wants riskless returns? Banks don’t use bank deposit products as investments. Yes, that’s because investments like U.S. Treasuries pay more. But there’s a second reason: Banks can access a wide range of investments, enabling them to structure portfolios aligned with their objectives.
The CD, for example, lacks the desirability of treasuries, especially depending on the term. An informed investor won’t choose a savings account either because of banking’s focus on non-maturing accounts, which is a signal that bankers are positioned for rates to decline.
An Uber Ride or a Bus Ride?
What’s the most significant difference between an Uber ride and a bus ride? Many municipalities are catching up on their mobile apps, but you can’t take a bus to any location with an address. A neat mobile app cannot overcome the value differential between the Uber and city bus services.
What’s the most significant difference between fintechs and banks? Many banks now have apps that rival fintechs in functionality. But neither company can take you to any financial destination. The fintech’s products are a bank’s products; they’re just delivered through different channels.
The banking industry does not offer an Uber-style equivalent for deposit products.
Looking again at the recent personalization boom. How frustrating do you think it is to get a “personalized” email from a bank when they can’t actually take you to your desired destination? It might further frustrate depositors to learn that the rigidity has been chosen. Current core systems can do it. Here are some examples:
- I want a specific maturity date for a CD because the funds are for a particular goal.
- I need a structure for a savings account-CD bundle that supports a rainy-day fund, where some funds may be needed at a moment’s notice.
- I want to park discretionary savings in a product with a locked-in yield. But, I don’t want a product with a penalty that is always punitive, especially when a U.S. Treasury security would appreciate as rates decline.
- I want to know what my CD is worth on any given day.
How would banks customize products to meet each of these needs, respectively?
- Begin allowing depositors to pick a custom maturity date
- Begin offering savings accounts (with no deposits allowed after origination) that provide a competitive rate similar to that of a short-term CD. But offer them only when the client also opens a CD.
- Begin allowing clients to withdraw early, in whole or in part, as they could for a treasury, but charge them for any damage or reward them for the benefits to the bank.
- Begin listing a daily market value for CDs
Only You Control the Product
Fintechs have been able to swoop and disintermediate banks because they are very good at distribution and growth. Institutions have made significant progress, but they’ve also been competing with only one arm, and it’s the same arm that fintechs excel at: marketing personalization.
While non-bank competitors now seek to acquire charters, banks can compete on product without significant technology investments or projects. If they do, they can stop the bleeding and reclaim the volumes now leaving because tech companies are good at automation and modern experience.
Personalization’s not dead. Banks just need to take it where few can follow: begin customizing deposit products in personalized ways.
