Lose limitations, find the money: a roadmap for growth
Deposit generation has posed a major challenge for financial institutions over the past year. Strong asset growth has resulted in high loan-to deposit ratios—in excess of 100 percent at many banks. And we expect this state of affairs to continue because the economy remains strong—for while a slowdown is widely predicted (and has to occur sometime) few economists expect a recession in the near term.
But continuing to grow earning assets faster than core deposits isn’t sustainable and poses a particular problem for regional, mid-size and community banks.
By comparison, large banks have leveraged their size to wield even greater dominance. Over the past several years, the three largest increased deposit balances more than the top twelve regional banks combined. And they did this without paying above market rates.
What lessons we can learn from their success? What’s working for community and mid-size banks that have found the “secret sauce” in deposit growth? What should you do now to jump start successful, cost-efficient deposit growth?
Five ways to find the money
- Fish where the fish bite. Focus on growing communities. This may sound simplistic but note what the largest banks do: They exit or diminish presence in low-growth markets (typically rural) and concentrate in those with higher-than-average growth (typically urban). In this way they use scale to dramatically outstrip competitors only capable of competitive advantage in smaller, rural markets.
You may lack the scale but can adopt the same strategy in your current markets. Don’t hesitate to consolidate or reduce operating expense in low-growth areas; reinvest in services and products critical to future profitability.
- Get granular: Draw up a detailed plan for every market and branch. Your branches exist to serve community needs. They still dominate as a source of new business (and yes, operating expense).
Branches attract customers who live or work in a defined area but it’s like gravity: Attraction (convenience) diminishes with distance. You can define your primary draw area, where 80 percent of customers originate, with high accuracy. An easy rule of thumb is to use a five-minute drive time in a suburban location, about 2-3 miles. This will, however, vary significantly based on population density (Downtown urban cores may constitute a few blocks, while rural areas will be larger).
If you can know and define where your consumer and business accounts come from, you can also identify every potential prospect by name, typical product usage and probability of attraction. Leading organizations have developed micro level sales and marketing plans down to the branch level, with specific action plans to fuel growth.
- Fix your products. Design products that compensate the bank but also create incentives for customers to bring more balances. This entails training employees to articulate benefits clearly—and not apologize for costs.
Too often products sound too complex, the value proposition unclear. Make it simple and easy to understand for your customers and staff (who have to explain it). And embed features into your products with the highest impact on attraction and satisfaction.
Here’s an example: With data breaches prevalent today, privacy protection has a high perceived value compared to its actual usage. By utilizing these preference tradeoffs, financial institutions can maximize value for customers while growing fee income from features they consider reasonably priced for the service offered.
- Integrate your physical and digital experiences. We know that most customers open accounts in branches—even 72 percent of digital-centric ones.
But behavior is shifting. As more customers move to digital channels, the ability to easily interact, provide advice and sell additional products and services drops. This creates lower satisfaction levels for digital-only customers because they have limited engagement and emotional connection with the bank—making them more likely to switch institutions.
This is not an age or channel preference issue, but one of process. Whether branch-centric or digital-centric, boomers or Gen Y, those who receive the personal branch experience consistently have higher satisfaction levels.
Thus financial institutions must address customer experience shortfalls with products, fees, communication and digital functionality. Doing that requires better onboarding strategies and metrics around key leverage points.
- Know where the money hides. Mostly it hides in plain sight due to lack of relationship depth (yes, cross sell is still important), account diminishment and ultimately account attrition.
Bringing in new money is only part of the equation—growing and keeping what you have are every bit as important. Some very successful institutions do an acceptable job in new account acquisition but prove tremendously effective in those other areas. That means more profitable customer relationships with lower marketing acquisition costs.
In the quest for growth, don’t forget to deploy the metrics and the tactics to support these strategies. It’s not as simple as having a customer relationship management system or automated lead generation and marketing program. Rather, it takes diligence and execution.
From talking, to walking, to winning…
Finally, walk the talk! Are you doing what you know you must—and what you promise?
Digesting more than 6,000 discrete branch observations and “day in the life” assessments, we found significant variance between senior management’s expected goals and where people actually spent their time.
Uniformly, financial institutions want to shift behavior toward sales, outside calling and relationship development. But in our experience, actual behavior is different—with far more time on operations than expected.
So in the end shoot for execution: Define a few key strategies for success and change the cadence to focus your activity on those drivers. Again, adopt a relentless dedication to walking the talk. Indeed, you’ll stand out and cash in during a time where so many banks remain content with talking the walk.