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Taking Time to Focus on the Relationships You Care About

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This is a rare time in which banks can zero in on their portfolios of deposit and loan customers by analyzing persistence, rate sensitivity and shopping behavior.

And unlike previous low-rate environments, banks can now tap into advanced scoring capabilities to help build a stable customer portfolio and cement those relationships for the long term.

An Unusual Opportunity

When rates are high, banks have little time to research, plan and execute those plans to drive balance growth for deposits and loans. Rapid, broad offers overtake tailored customer experiences around preferences as banks try to keep up with competitors on rate. The result: organizations look past the longer-term deleterious effects of low-quality customers who are more than happy to take the offer and run.

When rates are low, banks tend to ignore deposits altogether.

Instead, leading deposit and loan product managers should use today’s low-rate environment to spend the time curating portfolios and then taking the time to engage with customers. Loan managers can trim credit lines of higher-risk customers and cancel lines entirely for credit-card customers who haven’t activated or used their cards in years. On the deposit side, rates will play a smaller role so that organizations can take the time to develop customer experiences that redefine the relationship. (See Figure 1.) They can also identify balances that, regardless of customer relationship, have a low probability of retention.

Figure 1: Savings/MMDA Acquisition & Portfolio Rates


Source: Novantas Comparative Deposit Analytics (CDA) Database, September ‘20 | Simple average used to protect participant anonymity

Figure 1: Savings/MMDA Acquisition & Portfolio Rates


Source: Novantas Comparative Deposit Analytics (CDA) Database, September ‘20 | Simple average used to protect participant anonymity

Current Trends Call for Another Look

Banks have plenty of opportunity to re-visit these customer relationships. The Federal Reserve has pumped an extra $2.3 trillion into the economy so far this year, most of it coming in the form of commercial deposits that have flooded bank coffers. Since the beginning of February, the spread between acquisition and portfolio deposit rates has shrunk form an average of 85 basis points to zero. Acquisition rates, meanwhile, have fallen from 1.6% to 0.14% for network banks. Even direct banks have dropped rates to the 40-60 bp range, possibly the lowest level they have ever set this early in a low-rate cycle.

Banks are also facing challenges for revenue growth. Consumers who are growing more comfortable with opening online accounts are increasingly attracted to neobanks and fintech providers that take aim at maintenance fees, overdraft and ATM fees. (See Figure 2.)

Figure 2: Industry Annualized Revenue (Trailing Q4)

Source: Novantas analysis of FDIC call reports

The Deposit Agenda

Banks can take steps now to redefine multiple types of deposit relationships. The ultimate goal: determine which customers are valuable enough to keep and find ways to lengthen the duration of their low-cost deposits.

For relationship-oriented customers, banks can offer fair rates and reinforce convenience, customer engagement (relevant interactions in support of longer-term relationships), service and recognition of their value. Engaged customers, for example, are historically less price-sensitive than other customer types.

For those who have just one product with the bank and tend to seek rate, banks can take the time to engage the customer in a more comprehensive relationship by offering products and services that can result in less price sensitivity and fewer withdrawals.

Banks also need to identify the customers who are likely to flee as soon as a better offer comes around. If a bank needs deposits, it could be worth paying a little more to retain them now rather than paying a lot more to re-acquire them in the future.

Furthermore, banks can develop a deposit acquisition playbook that considers the different levels and pools for different deposit amounts. Limited deposits can be acquired through direct offers, avoiding repricing the entire book. Moderate deposits can be acquired with time-limited offers that focus on term and/or behavioral-based deposit products. Banks can offer a higher deposit rate if the customer demonstrates active checking account or credit-card behavior. Another option is to offer a lower loan rate if a customer meets certain deposit criteria. And large sums of deposits can be acquired out of footprint with direct offers.

The Enabling Capabilities

As in the high-rate environment, banks can use scores to target customer treatments specifically around deposit actions. Like credit scores, these deposit scores provide organizations with insights of customer behavior in three dimensions. (See Figure 3.)

First, shopping behavior helps determine how likely the customer is to bring money to the bank, often regardless of rate. Rate sensitivity assesses how much money a customer will bring in per unit rate. Finally, measuring persistence will help a bank prepare for how long a customer’s deposits will remain at the bank.

Figure 3: Portfolio Focus

Objective: Downprice Balances with Confidence

Customer Treatment: Lower rates on the portfolio. Identify short persistence/price-sensitive balances that may require outreach for retention  

Objective: Build Deposit Resilience

Customer Treatment: Target short persistence, price-sensitive balances with treatments to engage them in other value propositions at the bank 

Objective: Acquire High-Quality Balances

Customer Treatment: Focus new-to-bank offers on customers whose marketing attributes correlate to long persistence and low price sensitivity. This may reduce production, but increase longevity.

Source: Novantas analysis

Taken together, scores can predict the marginal cost of funds (mCOF) for acquired balances. Individually, they can inform which treatment is appropriate for each customer. (See Figure 4.)

For example, persistence score bands rank balance retention. Focusing retention efforts in the lower score bands is more efficient than a general marketing message around balance retention. The knowledge that marketing and incentive costs for acquiring $1 in deposits can be as high as 40 basis points will also drive treatment strategy. Similarly, the mCOF scores rank customers on the cost of acquisition. Novantas has found that focusing on the acquisition of lower-cost balances can save as much as fivefold in the marginal cost of
deposit acquisition.

In an evaluation of portfolio retention for five banks, it is clear that the different strategies result in far different outcomes. While one bank enjoyed 95% balance retention for more than 70% of the balances it acquired, another only enjoyed 60% of balances with retention of 90%.

Banks shouldn’t get lazy about deposits just because rates are low. There’s little doubt that banks can achieve their balance-retention goals by different customer-level strategies. The first step is determining that this is the time to get started.

Figure 4: Prioritizing Balance Retention

>850 9% 105+%
800-849 6% 100-105%
750-799 12% 97-100%
700-749 35%  93-97%
650-699 21%  85-93%
600-649 9% 70-85%
550-599 6% 55-70%
<550 1%  35-70%

Source: Novantas analysis


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