Deposits have been dropping off at U.S. banks for years. And according to a recent Aite Group study, "Why Money Can't Buy Love", there is no one technology or formula that banks can follow to reverse the trend.
Rather, the success with which a bank develops customer relationships goes a long way toward determining its deposit performance, according to Aite director of research Gwenn Bézard, who authored the report. "The key finding is that deposit performance is critical to most retail banks' success," he says. And "this is driven by the ability to better care for existing customers and manage deposits off those existing relationships."
The problem, Bézard says, is that banks have been too focused on customer acquisition. "Most institutions ... are stuck in a vicious cycle where they have high customer attrition rates and they try to replace those deposits by paying higher interest rates to new customers," he explains.
According to the study, financial institutions replaced each $1 lost to attrition with $1.83 in new customer deposits and $0.10 from organic growth. But Bézard is quick to point out that "You don't have to pay as much to grow existing deposits as you would if you wanted to attract brand-new customers."
Properly pricing interest rates, Bézard adds, can help banks grow organically. And in this case, more isn't always better, he says. In fact, the study found that top-performing banks tend to offer below-average rates to existing customers.
While finding the right pricing mix is a challenge, benchmarking solutions can offer some guidance, Bézard notes. "Where technology can help is in giving you a better benchmark for deposit rates within your footprint," he says. Of course, an effective CRM platform also is critical, Bézard adds.
But the fact that successful banks often offer lower rates indicates that there is more at play here than money, Bézard asserts. "It's not just about pricing -- it's how you treat customers, your service and branding," he stresses. "The successful [banks] ... are taking care of the customers that they already have."
Boston-based Aite examined a sample of U.S. banks, thrifts and credit unions ranging in asset size from $100 million to $50 billion. The firm used data collected by Atlanta-based Harland Financial Solutions' Deposit Benchmarking database to obtain a broad picture of deposit performance across the financial institutions.