If you look at the sensitivity in a bank’s budget, $1 of investment in new line of business usually doesn’t break even for two to three years. $1 invested in finding a new customer usually returns about 9%, while $1 invested in a new product is usually above 20%. This all compares to about a 40%+ return invested in improving processes (loan, branch, cash management, etc.) and about a 80% plus return spent on reducing customer churn, increasing lifetime value and/or helping cross-sell.
Banker To Banker
Last week (HERE) we looked at how deposit account tiering is used, some of the objectives that banks might employ and the effectiveness of tiering in total. As discussed last week, many banks tier without objective, without data and without supportive marketing thus rendering the methodology worthless and possibly hurtful.
Statistically, a “hot hand” in basketball doesn’t exist. In a detailed analysis of the 76ers and Celtics plus controlled experiments with Cornell’s varsity teams, researchers found that streaks were just positive random sequences with little evidence of correlation between outcomes and successive shots.
Back in October and November of 2007, yields dropped 20+ basis points and credit spreads increased by more than 10%. It ended up be a signal as the next month the US found itself in a recession. Yesterday we saw similar movements in the markets, as at one point the 10Y Treasury had moved more on a percentage basis than it had when the Lehman Brother’s collapse was made public and when 9/11 occurred. While both equities and bonds underwent some reversion by day’s end, there is a clear signal being sent that bankers can ignore at their own peril.
Because of tradition we tier our deposit accounts according to size. Here at CenterState Bank, in our money market accounts for example, we have six tiers ranging from $2,000 up to $100,000. Currently, only the $100,000 and above tier pays a different rate of interest. The question that always comes up is do we have the right tiers and the right number of tiers? Further, are we paying the right rate on the tiers to elicit the deposit behavior we want? Let’s explore each question as the answers may change how you feel about deposit gathering.
For those of you that remember our data on the seasonality of bank marketing (HERE for those that don’t), before October 24 is really one of the last chances of the year to drive any kind of effectiveness. October 24 through November 21st is neutral and after the 21st you might as well light your marketing dollars on fire, as it will produce the same effectiveness.
This annual survey published by ACSI gives bankers insight into what credit unions are doing right and wrong. Some highlights:
- Credit union customers had just slightly greater satisfaction than bank customers
- Mobil and online banking has the largest impact on customer experience
- Utilization of mobile is becoming similar across all demographic catagories
- Branches help with acquisition, but usage is dropping
- Quality of branch staff has the largest impact on customer satisfaction (followed by mobile/online)
In the movie Forrest Gump, Bubba talks about 21 kinds of shrimp preparations, but only lists a couple (our preference is the shrimp gumbo). In the 1975 Paul Simon hit, the singer claims that there are 50 ways to leave your lover, but only list five.
Many banks have their certificates of deposits modeled on their asset-liability systems without optionality. That is, they treat the final maturity as gospel with little weight given towards repayment. This could be a mistake, as just assuming the forward curve is accurate, CD’s are set to exhibit about a 20% shorter duration than modeled.