In the quest for deposits, one successful tactic at top performing banks is to target the right customers. While banking everyone in your community is egalitarian, it is also a poor use of resources. Some customers offer better returns because they use more banking services and have more deposit balances. Not to say you want to ignore some parts of your community, but why not focus more of your resources on those customers that are going to make your bank more profitable?
Tag: Building Deposit Balances
No matter what size bank you are or what your experience level is, there are simple things you can do to improve performance. Today, we will look at an example of how data, marketing, and deposit building can work together to build shareholder value and improve customer engagement at the same time. To pull this off, all it takes is about two hours of time, an Excel spreadsheet and some email marketing to create long-term franchise value. In this article, we explore a technique that can be used for almost any product to drive profitability.
In our series of using machine learning on deposit management, one lesson that we picked up is how to segment a market to gather the deposits and the customers that best fit your bank. As we pointed out in previous articles, one problem with our industry is the “lazy carpenter syndrome” which is derived from the old adage that when you have a hammer, everything looks like a nail. For bankers, most potential deposit customers are viewed only through the lens of rate.
Here is an update that will help banks prospect for deposits. While every bank wants to attract Millennials to stem their aging customer base, just keep in mind that when it comes to deposits, the Boomers remain almost 50 times better to market. Just take a look at the graph below that shows the average percentage of assets under management (AUM) at RIA firms.
Money-market mutual funds have been one of the most popular products for investors but recent changes have made the product less so. A couple years ago (HERE), we wrote about the tactical opportunity that banks had for capturing inexpensive deposits from institutional and corporate investors. The tactic worked beautifully as banks that focused on pitching their money market deposits and CDs saw an influx of funding back in late 2014 and 2015.
2a7 money market mutual fund reform continues to cause short-term liquidity outflows. Last month (June), $110B flowed out of money market funds and into other short-term investments. During this time, the average maturity of these money market funds shortened from 29 days to 24 days. Further, the short-term part of the yield curve decreased and flattened. Why would a bank care?
You can always tell a good banker by the way they handle their deposits. When it comes to loans, it’s hard to discern expert level skills unless you know the market and know the credit. Deposits, however, are pure. When we analyze a bank, it is normally the first thing we look for as deposit pricing and structure is the one metric that tells you the most about the quality of a bank. A low cost of funds is just part of it. Almost equally important, and lost with most analysts, is the behavior or performance of a bank’s liability base with movement in interest rates.
Falling energy prices have been front and center in the headlines lately, which is a good thing for retail-oriented banks. Experienced retail bankers understand that consumers often react to lower energy prices by treating it as a windfall and increasing their savings rate. Statistically, the correlation over the last 5 years is that energy prices explain approximately 68% of the savings rate – a correlation that is exceedingly predictive. The question is, what is your bank doing to take advantage of this trend?