When it comes to determining the value of a deposit base, there are three major components that drive franchise value: effective cost of funds, interest rate sensitivity (duration and convexity) and volatility.
Tag: Deposit Products
In Part I (HERE), we got all Warren Buffet against the backdrop of Jimmy Buffet and explored how rising rates were starting to impact deposit balances. We questioned whether “surge balances” are in fact a thing and if they are, is this the time that we will see an exodus of balances move into other asset classes like fixed income, equities, real estate and capital spending.
This week, Simple, a division of BBVA Compass, launched a non-spouse account and many banks across the industry wondered why they don’t have a similar offering. The answer to why more banks don’t have a non-spouse account is because of tradition. Bankers for decades either never paid attention to demand or never stop to question the current state of affairs of account opening and structuring.
When designing products, choosing vendors or trying to solve usage challenges, understanding the importance of alerts and notifications is critical to success. Alerts are important now and will be even more essential for the modern banker to understand in the future as banking morphs into a collection of mobile apps and wearables.
There is a recent trend that we have been monitoring of banks offering a mid-priced business checking account that is designed for borrowers that are small but have high transaction volume. M&T Bank, for example, was the latest bank to roll out such an offering. A high transaction checking account can be offered to customers that have high transaction volume and more sophisticated treasury management needs but don’t want to move into full analyzed checking.
If you have to battle the large national or regional banks for treasury management business, then you are in luck because competition is easy. Of course, many community banks don’t feel that way, but often that is because they have the wrong approach. At a recent conference, we gathered a group of banks to distill best practices and then enlisted the help of Mary Morgan, CEO of Financial Shop Solutions that specializes in helping banks better compete.
What is your bank’s goal for your savings account compared to your money market account? The reality is that most banks haven’t thought of it and have their savings and money market accounts established because that is how they always have done it and that is what the competition does. The reality is that when you look at the aggregate performance statistics – balances, lifetime value, duration, convexity and cost to administer, there is very little difference. While some banks do use each product tactically, most do not.
Hopefully, your bank has pulled all your advertising and major marketing campaigns around products for the months of November and December as those two months are the most ineffective to promote bank products. Not only are people and businesses distracted during those times, but banks have to compete against a barrage of other advertising and marketing messages from retailers. Given higher advertising prices and lower response rates, December and November, respectively, are the two worst months for marketing return on investment.
It is December, which means many travelers will be taking last minute flights in order to make sure they qualify for the next loyalty tier. Just as airlines have perfected customer engagement through loyalty tiering, so to can banks.
Bank of America (BofA) is currently running an offer that will pay new customers $500 to open an interest bearing checking account set up to receive two qualifying direct deposits of $2,000 or more within 90 days AND open a money market savings account with an initial $20,000 deposit. That $24,000 in deposits will net BofA approximately $397 of value according to the current forward curve, the account’s expected lifetime value, BofA’s average beta and net of interest expenses.