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This Month in Retail Banking | January 2021

NEW YEAR, FRESH FOCUS

The first weeks of 2021 haven’t been the clean reset from 2020 that most Americans wanted. Bankers and business owners are working through the second round of PPP, COVID-19 cases remain elevated and bank accounts are experiencing inflows from the latest round of stimulus payments – with potentially more on the horizon. The combination of a slow vaccine roll-out and the prospect of more stay-at-home orders prompted us to analyze some key findings from 2020 to help understand priorities for 2021 and beyond.

The current deposit surge, which is expected to grow even further with additional stimulus funds, provides banks the opportunity to focus on restructuring for the post-COVID-19 environment and focusing on primary relationships, both in the existing customer base and in acquisition.

Consumer Deposit Growth Supercharged (Again) by Stimulus 2.0

Many consumers have recently received their second helping of stimulus checks, whether direct-deposited into their accounts or sent (more expeditiously this time) by paper check or debit card.

After a year in which many banks saw consumer deposits surge 10% above normal growth levels, it appears we are headed for another year of brisk deposit growth. In addition to the January stimulus benefits, accounts are also being bolstered by extended federal unemployment insurance and other provisions of the $900 billion stimulus package that was enacted last month. And that doesn’t even include additional $1,400 that is part of President Biden’s proposed $1.9 trillion COVID-19 relief plan.

Through it all, the pace of economic and health recovery remains uncertain.

The 2020 deposit surge was driven by two broad factors, although government actions (like stimulus direct payments and mortgage and rent forbearance) were a larger driver than changes in customer behaviors (like declines in discretionary spending, particularly for more affluent consumers.) (See Figure 1.)

Incremental consumer deposit balances could grow anywhere from the low single digits to more than 15% this year, with the higher estimates assuming the additional financial package from the Biden administration that includes more direct payments and other government stimulus factors  In total, that means 2021 could end with the consumer deposit base up a cumulative 25% over normal levels relative to the end of 2019.

As executives manage the swell of deposits, they shouldn’t lose sight of understanding which customers are primary. A focus on growing and deepening those relationships will provide economic value when the surge ultimately subsides.

Figure 1: Projected Drivers of COVID-19-Related Retail Surge Deposits | Mar 2020 – Jan 2021

Net COVID-Related Retail Surge Deposits

Stimulus (1st Round $1200 Checks)
Stimulus (2nd Round $600 Checks)
Above-Replacement Unemployment
Rent & Mortgage Forbearance
Decreased Consumer Expenditure
Other Factors

Total Increase Approaching $1T

Source: Novantas Research & Analysis, Comparative Deposit Analytics (CDA) Database, Novantas Customer Knowledge | COVID 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 | 1 Projected Net Inflows calculated based on data since the start of the COVID pandemic and cross referenced with government sources, research papers & other reporting

Don’t Put the Brakes on Marketing Spend

Many bank marketers responded to the COVID-19 pandemic by halting or dramatically pulling back on baseline marketing spend. The latest data from Novantas AIQ confirm the sharp drop that occurred while marketing teams waited for the environment to settle down.

The data also reveal the implications of that strategy. The one-two punch of restricted customer movements, coupled with the pullback in spend, contributed to the decline in new-to-bank acquisitions in the first half of 2020.

It is important to note, however, that the old adage “spend into a downturn” appears to have paid off for those banks that stayed the course. While everybody suffered a sharp drop in acquisitions in the period between March and May, those banks that maintained spending saw an acquisition bounceback more quickly in June and July. (See Figure 2.)

The lesson? While it may be tempting to put the brakes on marketing in a period of crisis and economic uncertainty, marketers should instead consider reallocating those dollars to address behavioral changes among current and future customers.

Figure 2: Monthly NTD* Acquisitions vs. Monthly Spend Indexed to 2019 Monthly Average

High-and-low spend groups are determined using the average of spend indexed to average 2019 monthly acquisitions across the months of the pandemic. The top three banks were included in the high-spend group and the bottom three banks were included in the low-spend group.

Source: Novantas AIQ and Novantas Analysis | * NTD (new-to-deposit) acquisitions refers to checking acquisitions where the customer doesn’t  hold a deposit account prior to account opening

Musical Chairs in Marketing

The one constant from the past year has been change and many marketing organizations have adapted to compete in this ever-evolving environment. The most recent Novantas AIQ report found that nearly half of surveyed banks changed roles among marketing’s senior leadership within the last year. In particular, many institutions moved away from or consolidated line-of-business specific roles and expanded leadership in marketing analytics.

Across the industry, many banks have also started bringing marketing services in-house – from creative to analytics, media planning and technology. So far, it doesn’t appear that the need for cost savings is the primary motivator for these actions (although there certainly is some pressure to reduce agency fees in creative development). Instead, banks are moving to take control of the data that are critical for effective marketing in a digital-first world – from targeting capabilities for prospects and customers as well as measurement.

These organizational changes should accelerate in 2021 as banks increasingly tap analytics to drive marketing operations and profitability.

GettyImages-131957661-edit

Sales Decline Requires Workforce Review

Novantas has been tracking teller transaction and branch sales activity throughout the course of the COVID-19 pandemic, using our SalesScape comparative analytics platform that reflects activity at more than 14,000 bank branches in the U.S.

The latest data show that teller transactions are still 26% below prior-year levels and indicate no momentum toward returning to pre-pandemic levels.  While we expect some uptick once the virus is controlled, it is likely the pandemic will result in at least a 20% reduction of teller traffic. (See Figure 3.)

Figure 3: Teller transactions per branch are down 26% year-over-year and are stable, suggesting most of this volume won’t return.

2017
2018
2019
2020

Source: SalesScape Comparative Analytics; Teller Transaction volume decreasing at faster rate as number of branches continues to decrease each year

New-to-bank account sales and cross-sales to existing customers (both down 15%) have been less impacted and are somewhat more likely to return to pre-COVID-19 levels. (See Figure 4 and 5.) The growing number of digital account sales may inhibit a full return, however.

With more than half of the branches in the U.S. already sub-scale in terms of customer activity and at or near minimum staffing levels prior to the pandemic, the industry will require more than just more branch closures. In fact, a re-examination of the retail workforce is necessary.

Figure 4: New-to-bank deposit product sales per branch are down 15% year-over-year. History indicates more declines will be revealed for the fourth quarter of 2020.

2017
2018
2019
2020

Source: SalesScape Comparative Analytics; Teller Transaction volume decreasing at faster rate as number of branches continues to decrease each year

Figure 5: Cross-sell deposit products are down 15% year-over-year. More declines are likely for the fourth quarter of 2020.

2017
2018
2019
2020

Source: SalesScape Comparative Analytics; Teller Transaction volume decreasing at faster rate as number of branches continues to decrease each year

Consumer Worries and Goals

Getting the financial house in order often ranks high on the list of New Year’s resolutions, but the economic implications of the pandemic have put fresh emphasis on that goal for many Americans. More than half of the people who are shopping for checking accounts feel anxious about their financial predicament. (See Figure 6.) But when it comes to addressing the issue, most shun professional guidance. (See Figure 7.)

Figure 6: More than half of shoppers indicate some degree of financial anxiety and the need to buy holiday gifts added to that stress.

Financial Anxiety

A little worried
Somewhat worried
Very worried
Not at all worried

Drivers of Financial Anxiety

Financial Anxiety

A little worried
Somewhat worried
Very worried
Not at all worried

Drivers of Financial Anxiety

Source: Novantas Customer Knowledge | General Pulse Survey
Sample: FABB shoppers 12/8/2020 — 01/4/2021 (n=545)
T3B: top 3 box worried

Figure 7: Nearly half of shoppers included financial wellness in their New Year’s resolutions, but only 15% intend to meet with a financial advisor.

Likelihood to set a financial wellness goal

Very likely
Somewhat likely
Neutral
Very unlikely
Somewhat unlikely

Goals for the new year (TB % *)

Most Likely Source of Financial Advice

Likelihood to set a financial wellness goal

Very likely
Somewhat likely
Neutral
Very unlikely
Somewhat unlikely

Goals for the new year (TB % *)

Most Likely Source of Financial Advice

Source: Novantas Customer Knowledge | General Pulse Survey
Sample: FABB shoppers  12/8/2020 — 01/4/2021 (n=545)
* – T2B: top 2 box likelihood / TB: top box likelihood

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