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This Month in Retail Banking | April 2021

Navigate today. Anticipate tomorrow.

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There’s no question that Americans are outspoken about what they like and don’t like about banks. Unfortunately, banks too often don’t listen. They need to start.

The early spring has brought optimism across many parts of the country. Although COVID-19 cases are still surging in places like Michigan and the country is averaging about 70,000 new cases every day, the pace of vaccinations is also on the rise (despite this week’s pause of the Johnson & Johnson vaccine). And even some of the states that have been most conservative about lockdowns are now slowly easing restrictions.

The April issue of This Month in Retail Banking addresses some important topics that banks must address to meet the needs and wants of their customers.

First, we provide our latest deposit analysis that reveals what consumers are doing with their latest stimulus payments (hint: not much) and how the deposit surge is scrambling traditional ways to assess creditworthiness.

Next, we raise the alarm about the significant risks that banks face if they don’t establish and maintain relationships with digital customers. We also report on how banks have been slow to adopt subscription pricing even though consumers — especially younger ones — are interested in the concept.

Finally, we analyze movement patterns as many consumers cautiously emerge from their bubbles after a year of staying close to home. Such trends will be critical for branch planning in coming months.

Deposit Surge Continues, Scrambling Traditional Credit Measures

The surge in retail deposits shows no sign of abating, as the continued combination of government actions and customer behavior changes swells retail banks’ deposit coffers — and incidentally upends the traditional toolkits for assessing credit risk.

With the third wave of stimulus funds now in accounts, the industry’s retail deposit surge once again is comprised principally of government actions, including the stimulus checks and policy concessions like enhanced unemployment benefits and rent and mortgage forbearance. (See Figure 1.)

Figure 1: Consumer COVID-19-Related Retail Surge Deposits

Net COVID-19-Related Retail Surge Deposits

Stimulus (1st Round $1200 Checks)
Stimulus (2nd Round $600 Checks)
Stimulus (3rd Round $1400 Checks)
Above-Replacement Unemployment
Rent & Mortgage Forbearance
Decreased Consumer Expenditure
Other Factors
Customer Behavior
Government Intervention

33% of Stimulus Round #3

expected to run down by mid-April

Source: Novantas Research & Analysis, Comparative Deposit Analytics (CDA) Database, Novantas Customer Knowledge | COVID-19 Pulse Survey | FRED Total Savings Deposits at all Depository Institutions, Seasonally Adjusted, FRED Personal Savings Rate, BEA Personal Income and Outlays Report, Becker Friedman Institute for Economics at the University of Chicago, Statista, U.S. Census Bureau & Department of Commerce, U.S. Treasury Department | Projected Net Inflows calculated based on data since the start of the COVID-19 pandemic and cross referenced with government sources, research papers & other reporting

Given these deposit tailwinds, Novantas Weekly CDA Tracker data show that customers are spending less of the money than many anticipated — the drawdown of the third round of stimulus payments was meaningfully slower over the first three weeks post-deposit compared with the second round. Only 22% of customers have completely spent stimulus funds received compared with 35% two weeks after the second round.

Just as government actions have aided the deposit surge, so too have they undermined the ability for banks to assess credit through traditional underwriting efforts. Pandemic-related loan accommodation programs and the new surplus of deposits in many customers accounts have meant that the traditional link between credit scores, default rates and unemployment has been severed.

Figure 2: Deposit Underwriting Scores Predict “Bads” within Traditional Risk Bands

(Disguised case study aggregation)


Source: Disguised client loan and deposit data (credit card), Novantas Analysis
Bad rate: Account 60 days past due next 24 months; Good: never more than 5 days past due next 24 month
Good rate: Never more than five days past due over next 12 months

Given the forward uncertainty of deposit trajectories and the future expiration of government programs, bankers are increasingly using this opportunity to infuse their underwriting approaches with customer deposit data. Novantas analysis across multiple CDA participants shows that a deposit-based lending score can discern between the “goods” and “bads,” even within narrow FICO bands. (See Figure 2). Banks should take advantage of such insights, both to navigate the immediate environment, as well as to claw back the lending advantage that once accrued to primary bank relationships before monoline lenders and fintechs made inroads.

Banks Fall Short as Consumers Embrace Digital Account Opening

The desire by consumers to open accounts digitally currently stands at an all-time high even as Americans increasingly return to some of their pre-pandemic behavior.

Although this trend carries enormous opportunities for banks in terms of costs and efficiencies, it is also full of risks because banks just aren’t establishing and maintaining relationships with these customers.

Novantas research has found that digital customers have 7-10 times lower balances on average than those who have opened their accounts in a branch. They also buy fewer products and have higher attrition.

The result: Novantas estimates that banks that fail to optimize for digital origination and onboarding could see anywhere from a 17% – 41% decrease in new-to-bank deposits. (See Figure 3.)

Figure 3: Estimated Future State

Banks that fail to optimize for digital origination and onboarding could see a 17% - 41% decrease in new-to-bank deposits.

HHLD Retention

HHLD Avg Balances

Annual NTB HHLD Balances

Source: SalesScape April 2019 – November 2019 Data
Note: All numbers reflect 8 months on book | Balances include Non-Interest Checking, Interest Checking, Savings/MMA, and IRA | Assumes sales remain flat

Can your bank really afford to lose those relationships?

To compete in a digital-first world, all banks must humanize their customer interactions to drive deeper, stickier relationships. They must figure out how to engage digitally-acquired customers at every stage of the onboarding funnel to drive relationship value in a way that replicates what exists in human channels.

Figure 4: Primary Checking Account Opening Channel

Two-thirds of consumers begin their account-opening process digitally.


Source: Novantas Customer Knowledge | 2017/2018/2019/2020 U.S. Shopper Survey  
Base: Q32 Recent Purchasers (N=10038)

The most recent U.S. Shopper Survey from Novantas shows that nearly two-thirds of consumers say they started their account opening process digitally. (See Figure 4.) That is roughly double the rate in just three years. Similarly, our Digital SalesScape benchmark, which tracks the scope and quality of digital sales each month, shows digitally-originated accounts are holding steady at 35% — roughly 15 percentage points higher than where they were pre-pandemic.

There’s really no time to wait.

The Value of a Subscription Model

With fee revenue under pressure, many banks are racing to expand their premier and wealth businesses in the hope of offsetting some revenue that is being lost to digital disruptors and regulatory oversight. This may address some of the pain, but the market opportunities are limited. As a result, most banks need to create new revenue streams within consumer banking.

To that end, a growing number of banks are seriously considering subscription pricing. Novantas research has found that consumers are interested in subscription pricing, but don’t think banks are doing enough to offer these products.

In fact, the research has found that younger consumers (yes, the same ones who have Netflix, Peloton and BarkBox subscriptions) have a higher affinity for subscription pricing at their banks. Our product research shows that “HENRYs” (high earners not rich yet) are 25% more likely to switch to a subscription model from current pricing structures.

Traditional banks previously have tried various “bundling” structures that enable a form of subscription pricing – from choosing your own bundle to choosing add-on services. Many of those models have been pulled from the market, however, because the act of choosing banking features is too complicated and the features were not differentiated enough for consumers.

Digital disruptors are already testing the territory today. From incorporating metal debit cards to providing access to financial coaching, these players are offering subscription models that include simple banking services with differentiated features that bring added convenience and delight to their customers’ lives.

Research has found that younger consumers (yes, the same ones who have Netflix, Peloton and BarkBox subscriptions) have a higher affinity for subscription pricing at their banks.

With the potential of higher acquisition lift and greater willingness to pay for such service and convenience, product teams across retail banking should explore, develop and test a subscription model strategy that will drive future revenue growth as the traditional revenue model continues to be disrupted.

Americans Hit the Roads (But Not the Malls)

The growing availability of COVID-19 vaccines is driving fresh changes in U.S. movement patterns. Though we see folks begin to get out and about, the types of retailers that are experiencing increased visitation continue to be influenced by the virus.

It is important for banks to track these movement patterns as a critical part of branch planning — from branch convenience to billboard value.

With more than a third of Americans having received at least one vaccine and nearly a quarter of the population being fully vaccinated, our latest mobile geolocation data shows large increases in individuals leaving their homes and visiting retail and other commercial locations. While we expect visitation to continue to be elevated, it is still unclear the extent to which this will hold.

Whereas the whole country remained below pre-COVID-19 visitation volumes through mid-February, the latest data show that most cities are now surpassing those numbers. (See Figure 5.) Although there is a steady increase in retailer traffic across the country, some cities are clearly rebounding more quickly than others.

Figure 5: Visits Relative to Average Over December 31, 2019 – March 2, 2020 | By DMA

Greenville – Spartanburg – Asheville – Anderson
New York
Total U.S.
Kansas City
Las Vegas

Source: NovaLocation
Note: DMAs include those with population > 2M and excludes California; Total USA excludes California
*Pre-pandemic time period Dec 31, 2019 – March 2, 2020

Furthermore, we continue to see strong differentiation in visitation across market types within regions. Novantas has categorized neighborhoods within cities based on commuter patterns into:

  1. Feeder Markets: Primarily “live” markets where people tend to commute into other markets for work
  2. Hybrid Markets: Markets where large populations both “live” and “work”
  3. Work Centers: Places where there is a high working population and a more limited “live” population; daytime population is high. These are often downtown or central business districts

Through the pandemic, we saw a redistribution of visitation away from work centers and toward feeder/hybrid markets. Even with increases in visitation across the board, we see that visits continue to occur in different communities than the pre-pandemic status quo, with work centers continuing to experience significantly lower visitation — and not much of a convergence over time. (See Figure 6.)

Figure 6: Visits Relative to Average Over December 31, 2019 – March 2, 2020 | By Type

Large DMA - Feeder
Large DMA - Hybrid
Large DMA - Work Center
Other DMA - Feeder
Other DMA - Hybrid
Other DMA - Work Center

Source: NovaLocation
Note: Large DMAs have > 5M population; other includes all other DMAs; California is excluded
*Pre-pandemic time period Dec 31, 2019 – March 2, 2020

We have also seen that COVID-19 has impacted categories of commercial locations differently. Unsurprisingly, recreation (gyms, athletic recreation, movie theatres, theme parks) and travel (airports, car rental, hotels) were most heavily impacted by the virus during the height of the pandemic lockdown (March-May 2020). Today, we see that recreation has increased dramatically to match visitation levels seen in other categories, but travel remains significantly depressed. Bank branches were the third-most impacted category, but appear to have largely bounced back in recent weeks. (See Figure 7.)

Figure 7: Visits Relative to Average Over December 31, 2019 – March 2, 2020 | By Business Type

Non-essential Retailer
Bank Branch
Essential Retailer

Source: NovaLocation
Note: Excludes DMAs in California
*Pre-pandemic time period Dec 31, 2019 – March 2, 2020

Within these categories, we continue to see dispersion among kinds of retailers. Visits to home improvement stores increased during most of the pandemic as people spent more time at home. Big Box stores and sporting goods stores increased traffic at the end of last year as people tried to keep themselves busy and entertained during the winter months.

While most non-essential retailers have started gaining visitation in the last few weeks, there is still significant dispersion. Most notably, malls unsurprisingly continue to experience extremely low visitation volumes, likely because people are continuing to shop online and avoid crowded areas. Similarly, though we see more folks renting cars and staying in hotels, airport visitation remains significantly dampened (indicating folks are beginning to travel longer distances via car, but not yet opting to fly). (See Figure 8.)

Figure 8: Visits Relative to Average Over December 31, 2019 – March 2, 2020 | By Business Type

Non-Essential Retailer: Home Improvement
Non-Essential Retailer: Big Box Stores
Non-Essential Retailer: Sporting Goods
Non-Essential Retailer: Malls
Travel: Hotels
Travel: Car Rental
Discount Stores
Liquor Stores

Source: NovaLocation
Note: Excludes DMAs in California
*Pre-pandemic time period Dec 31, 2019 – March 2, 2020


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