Monday, April 3, 2023
How would you characterize the post-COVID economy and its impact on consumer banking?
Managing through—and then growing and thriving—as a result of COVID-19 has been challenging for the banking industry. Some activities have experienced a "reversion to the mean"—consumers and businesses have returned to visiting branches in some capacity (and many still prefer this channel for certain engagements), revolving credit balances have continued to grow, and other behaviors have normalized a bit. However, many behaviors are being expressed at different and less predictable speeds and magnitudes. First, home purchase and mortgage refinance activity experienced an incredible increase in activity while many deposit taking institutions held more deposits than they had at any point in their history. The magnitude of these factors – the "ups" in mortgage activity and deposits – was heavily influenced by pandemic behaviors (work from home, the desire for more space, a lack of services on which to spend money) and interest rates.
There were other less visible changes too: new account opening among small business and consumers increased materially. Business established new relationships for relief funds or resiliency. Consumers – and mass affluent consumers in particular – finally had the time to consider their options and change primary FIs for better services, features or cash incentives. Just as dramatically, the magnitude of the "other side" is that mortgage activity has fallen precipitously and deposits are being spent or put to work in higher yielding instruments as we experience the most rapid increase in Fed rates in a generation. Perhaps the way we're all feeling this most acutely today is with the sudden rise in the value – both economically and optically – in low-cost, core deposits. Many institutions really haven't had to worry about deposits for well over a decade – really, since the beginning of the Great Financial Crisis. For some banks, this is setting off alarm bells and raising the question: what levers can be pull to raise deposits?
Given the current economic climate, why is it critical for all types of banks to boost depository reserves?
Although there are many ways for banks to secure liquidity and gather deposits, as the events of the last month have demonstrated, there is tremendous value in low-cost, core retail deposits. These deposits are sticky, and those under the FDIC insurance limits and attached to a core primary relationship are particularly so. These types of relationships have to be built from the ground up. While there are other levers for deposits, such as brokered deposits, our experience has been that the most economically responsible and efficient way to grow a robust, resilient deposit base is with relevant, precision direct response (or "one-to-one") marketing.
How can banks encourage consumers to capitalize on rising interest rates?
The good news is that the message is pretty simple and consumers don't need too much encouragement. After decades of low rates, households are waking up to the fact that their saved dollars have value again and many of them are looking for options. The most important thing for banks to do right now is find the households who have the capacity to fund a new deposit account and the affinity for holding some or all of their savings in a bank. Once they've found those households, it's important to address them with relevance. Rates are important, of course, but so is understanding the life stage of that household, how they engage and what products or solution might be fit their needs. The only way to do this at scale is with marketing.
How can banks leverage data and technology to power core deposit growth?
While marketing with relevance at scale can sound challenging – even daunting – the great news is that technology-powered, data-driven marketing has made tremendous advances over the last 15 years. The amount of data available to understand consumers has exploded, of course, but cloud-based technologies now make it possible to pull together many different data types into a usable "data fabric" in near real time. The best platforms responsibly collect and analyze data from many different sources to offer insights into the "triple crown" of deposit-focused marketing:
1) the capacity of any given household to fund an account – that is, how much does the household have available to put into a new deposit account?
2) the savings behavior of the household or, how much would a household prefer to hold in checking vs. savings vs. CDs vs. investments?
3) the provider selection preferences of the household: is this a household that would use a direct bank? Would they choose a community bank? Will they only consider national money center banks? In our experience, understanding these three factors is critical to any marketing plan – or frankly, any broader marketing growth strategy – to increase core deposits. Although precision marketing carries less risk to repricing large portfolios of existing deposits, many banks continue to use less targeted methods, such as mass print advertisements with aggressive rate offers, because they feel they lack the tools to use data and technology to deliver marketing that would generate the deposit results they need. Fortunately, banks don't have to "go it alone." Partners exist to help connect banks to the data and technology they need for success in deposit marketing.
How else can banks add value to traditional savings accounts to appeal to a range of demographic sectors?
Along with the table stakes of modern financial services – speed, convenience, and value – offering consumers a path to financial wellness and financial resiliency is key to helping consumers derive more value from their deposit relationships. Although some immediately think of content and insights when they think of financial wellness, there are other levers too.
Financial wellness can also include designing products to encourage "healthy" financial behaviors or helping consumers find the right financial products and solutions after a recent life event. At the core of any of these – content, product, or sales – is the data to better understand the consumer and what they need for their financial life.
What additional steps can banks take to educate consumers on the value and benefits of savings accounts?
After the bank failures of the last month, perhaps the most important thing banks can do now is help consumers understand that they can have both safety and value. Dollars saved are worth something again, and when placed in an FDIC-insured institution and under applicable FDIC limits, checking, savings and CD accounts remain some of the safest ways to put those deposits to work. 
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