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Edmund Lawler Nov 27, 2019

Account ability: Deposit growth gears up for 2020

The sudden shift in interest rate direction—realized in less than three months—pressures financial services organizations to scrutinize their strategies for growing deposits in the year ahead. But they still have plenty of cards to play.

Gee, thanks Federal Reserve for dampening the spirits of bank and credit union depositors by cutting interest rates for the first time in a decade this past July, again in September and then for an encore in October. Until your July rate cut, you’d been steadily raising rates from about zero to as high as 2.5 percent as the economy slowly recovered. Savers who’d been getting next to nothing were at least getting next to something.

But in the vapor trial of those cuts, financial services organizations’ strategies for attracting deposits in 2020 are cast adrift, with even the smartest bankers running on fumes.

“It had been seven long years with low interest rates, then they finally started to rise,” says Ken Tumin, founder of depositaccounts.com, owned by Charlotte, North Carolina-based LendingTree. “But it didn’t last long. Things changed very quickly this year.”

The sudden shift in interest rate direction—realized in less than three months—pressures financial services organizations to scrutinize their strategies for growing deposits in the year ahead. But they still have plenty of cards to play.

“Bankers can offer a high-yielding checking account in exchange for a minimum number of debit card transactions per month—typically about 10,” Tumin says. “That’s a proven way to attract more customers and deposits without hurting too much of your deposit costs.”

Brick-and-mortar institutions can partner with a fintech to provide an online banking platform that markets nationally and manages an online-only savings account or CD account. “It’s an inexpensive way for smaller banks to expand their core deposits without having to expand their branches,” he says.

Direct banks signal a new direction

Direct banks, with their branchless, lower-cost structures, have offered online-only savings accounts at rates four to six times higher than their conventional competitors.

The current average rate for online-only savings accounts offered by direct banks is 1.6 percent. That’s nearly six times the rate of the industry average of 0.28 percent, which mostly includes brick-and-mortar banks and credit unions, according to Tumin. Even if
the economy remains robust, the Fed may serve up two or more quarter-of-a-percentage point reductions, he says.

“If that’s the case, you’ll see the direct banks’ corresponding rate cuts in their savings accounts,” Tumin notes. “But you’ll see smaller rate declines with the brick-and-mortars because they have never come close to the federal funds rate.”

Lindsay Lawrence, who oversees deposit banking activities for First Foundation (a multi-branch bank based in Irvine, California, with $6.3 billion in assets) says her institution just launched a new online savings account that offers an above-market rate of 2.4 percent. Lawrence, the bank’s executive vice present and chief operating officer, says the new online savings account will help drive deposit growth strategy for 2020.

“We wanted to add a third leg to our deposit growth strategy,” Lawrence says. The first two legs are the bank’s retail branches in California, Nevada and Hawaii; and its specialty deposits group that focuses on more complex accounts for title, escrow or property management organizations. “The new savings account allows us to reach a client base that we had not before.”

The decreasing federal funds rate will not inhibit First Foundation’s growth strategy for 2020, she contends. “All the banks are in this together, so the competitive playing field remains fairly level. Consumers are paying attention, and that’s good.”

Lawrence points to 2018, when “people wanted to stay more liquid, so our money market accounts did better than our CDs. Now customers want to lock in for as long as possible. People are paying attention to these potential rate decreases.”

David Kerstein, president of Peak Performance Group in Austin, Texas, doesn’t believe falling interest rates will drive away depositors. “I actually think it could work in the banks’ favor in the sense that as more people get nervous about the stock market with continued volatility, there’s more willingness by consumers and small businesses to put deposits in banks,” he says.

Endowed with a wealth of customer data, banks need to do a better job of leveraging that information to identify deposit opportunities for their clientele. One of the simplest ways to attract new deposits in 2020, Kerstein says, is to make it easier for consumers to open accounts online. It’s what many direct banks do well.

Yet Kerstein stops short of recommending that traditional institutions launch full-blown, free-standing online banks to attract more deposits via checking accounts, savings accounts, CDs and money market accounts.

As underscored by the recent shutdown of JPMorgan Chase’s digital-only Finn brand, banks should tread cautiously on such turf. “It’s been a struggle for banks that have tried it,” Kerstein says. “You need to ask: How does it fit with our existing distribution? Is it an entirely separate entity? Or is it integrated? If so, then how do you manage it?”

Three marketing steps to step up deposits 

From a promotional perspective, financial services organizations can attract customers and their deposits in three steps, says Martha Bartlett Piland, president and CEO of MB Piland, whose Banktastic division works with more than a dozen banks and financial brands.

Piland is author of the new book Beyond Sticky, which offers banks strategies to help generate more revenue and profits through branding, customer experience, culture, innovation and business development. Her ideas include:

» Leverage your institution’s advisory board. Bankers are often reluctant to ask their directors to help them make appointments and get customers in the door—but it should be an expectation. Think of it as a higher level of influencer marketing.

» Ensure that your internal culture is married to your external marketing. Great sales promotions for deposits go for naught if the customer faces an unfriendly employee, one unfamiliar with the promotion or another who doesn’t feel part of the team.

» Don’t neglect brand at the expense of deposit promotions. If prospects are unaware of your brand, they won’t trust your institution to take care of their money.

Taken together, such steps can’t exactly make Jerome Powell and company take a breather. But they can put you in control of the factors your bank can influence — and in the process, deposit something positive into your team’s emotional account


Edmund Lawler is a BAI Banking Strategies contributing writer who lives in New Buffalo, Michigan.

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