In a recent article we published on Where Your Deposit Balances Are Going, we might have underplayed the looming competition for deposits particularly from money market mutual funds (MMF) and online-only banks. Our article failed to highlight an important signal that has only been present since April of this year. As such, our use of second-quarter data, in retrospect, didn’t adequately capture the risk that many community banks are and will be facing.
Tag: Deposit Pricing
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.
Earlier this week we highlighted the lessons that machine learning taught us about the Unified Deposit Formula (HERE). Embodied in the Unified Deposit Formula is a marketing and amplification equation. In this article, we expand on the lessons we learned from artificial intelligence when it comes to deposit gathering and explore how we can better use the Formula to optimize deposit gathering.
If you are looking for insight on how artificial intelligence can help banking, we give you the Unified Deposit Formula. Prior to using machine learning, we, like most bankers, thought about deposit pricing along a single dimension – price and sensitivity. However, it turns out, that price is not only just part of the equation but often a small part. There are thousands of other factors that play a part.
It seems like something is getting lost in the tribal knowledge of deposit gathering. Certificate of deposit (CD) “specials” and the odd-month CD offering are a good example of this. As the legacy knowledge of deposit gathering is passed down from generation to generation of banker, some of the finer points of liability structuring are getting bastardized with some knowledge just plain forgotten about. In this article, we highlight how many banks are misusing CDs at the detriment of their balance sheet plus offer some recommendations.
As deposits become more valuable, banks are getting more aggressive about raising funds. While we are not big fans of increasing liabilities through certificates of deposits (CDs), banks that do may want to consider requiring a checking account in order to increase performance. In this article, we look at some banks that do just that and how it helps them mitigate the performance degradation that normally occurs when offering higher-priced CDs.
Offering a Package of Products
At a recent Community Bankers of Georgia convention, a late night argument ensued over which banks are going to present the biggest deposit challenges for the next year. Now, granted you have to be a banking geek to really care about this on a Friday night, but it is an interesting question as the answer could help your bank more effectively defend its deposit franchise. In this analysis, we turn to the data to construct a “Deposit Threat Score” to hopefully provide your bank with insight into what your deposit future could hold.
Pricing any deposit product breaks down into two distinct categories. There are the technical aspects of pricing your deposits to optimize volume, duration, and convexity and then there are aspects of marketing economics. Masters of deposit pricing must understand both.
A business checking account is one of the most profitable accounts a bank can have. This is why it is perplexing that some banks put more thought into their break room coffee selection than the attributes of their business checking lineup. Many banks either fail to put proper thought into the pricing and design of the business checking account or evolve their offerings over time never stopping to restructure the offerings and attributes to meet their current customer targets.
We have discussed in the past how banks can increase sales in some regions and to some customer segments by moving to an annual membership fee (HERE). In this article, we look at the opposite and how banks can leverage the “daily incremental cost principle” to help spur sales of fee and deposit product. Customers evaluate bank products based on the logic of perceived value, but they purchase bank products largely based on emotion.