The deluge of deposits that financial institutions swallowed during the pandemic is quickly draining away. Recent data published in BAI showed that cumulative checking deposit account growth fell from a recent high of 7.4 percent in September 2022 to -2 percent in September 2023.
The Federal Reserve has also steadily ratcheted up interest rates until their recent pause. That pushed many consumers to protect their savings with the highest CD and money market rates they could find. Financial institutions have responded as best they can, repricing liabilities and attracting deposits with whatever means they have available.
In 2024, institutions cannot afford to take a haphazard approach to deposit growth. You need a strategy that balances market conditions with your resources. Here are a few suggestions.
See your balance sheet as it is
Wishful thinking isn’t a character defect that many banking executives exhibit. However, when the stress of economic turbulence and competition increases, most people start to daydream a little. That’s why the first step in your deposit growth plan for 2024 is managing your current liquidity situation — not the liquidity you wish you had.
What’s your loan-to-deposit ratio? Where do you want it to be?
The Fed recently paused interest rate hikes and seems willing to entertain the idea of an interest rate cut. That could boost loan demand in the short term as consumers and businesses that have held off on borrowing jump at the opportunity.
Is your institution prepared to take advantage of pent-up loan demand?
Eager to attract deposits, some institutions panicked and launched aggressive promotions on high-yield deposit products. In many cases, this approach cannibalized existing deposits and increased costs rather than pulling in the desired number of fresh account holders. Resist the temptation to engage in knee-jerk repricing and marketing campaigns.
What are the untapped audiences or markets that you could serve?
Have you analyzed the geographic region where your institution operates and identified the best demographics? Have you looked at your existing account holder base and looked at demographics that you could expand into? What about the digital space? Consumers shop for financial products online; if you have the right tools and infrastructure in place, you can serve account holders almost anywhere in the country.
If you’re going to grow deposits in 2024, you must be willing to explore new strategies. If you just copy 2023’s deposit strategy, you’ll probably copy the results as well.
Products, bundles and savings
We’re not villainizing the use of high-rate promotions to bring in deposits. It’s low-hanging fruit for CFOs who need to fix a liquidity problem. And it might even bridge the short-term deposit gap that you’re experiencing. If that’s what your financial institution needs, then a high-rate promotion will do just fine.
On the other hand, if you’re looking to grow deposits in a long-term, sustainable way, you’ll need a different set, or at least a more varied set, of tools and tactics.
1. Reward checking
High-yield checking or reward checking has become an increasingly popular option for attracting deposits. Oftentimes, the promoted rate is far above the actual rate that the account holder gets paid, and the behaviors of reward checking account holders tend to make and save you money. Reward checking is a great way to offer compelling incentives for the account holder while ensuring certain requirements, such as a direct deposit each month, are met. The right combination of perks and monthly deposit requirements will deepen engagement, drive retention and likely reveal more cross-sell opportunities long-term, making it an ideal tactic for both immediate and long-term deposit growth.
2. Value-added services
Some institutions have also seen success by offering non-financial products such as cellphone or device protection, insurance, identity protection, and prescription savings when new customers open an account. This may be an attractive package for certain demographics and therefore a tactic to consider.
3. Product bundles
Although it may seem simple, the power of suggestion is anything but. By creating bundles of products and services along with the right incentives, you can provide a compelling nudge for a consumer to make the switch.
4. Savings
CDs and money market accounts are the go-to solution, but don’t let that obscure the power of the humble savings account. Especially as household debt continues trending upward, consumers may need to draw down their savings to pay off debt. Incentivizing conventional savings accounts can be a useful compromise: Extra deposits that aren’t quite as sticky as time deposits.
Online account opening greases the wheels
Whatever deposit acquisition tactics you adopt for 2024, you should also evaluate the infrastructure that supports those initiatives. Digital account opening is a prime example. Based on Cornerstone Advisors’ What’s Going On In Banking 2023 report, only 21 percent of banks intended to select a new digital account opening solution in 2023. Yet, 71 percent of consumers surveyed by FICO in 2021 were willing to open an account via an app or website.
Here’s the rub: Online account opening (OAO) will never be the tool that draws in new account holders, but the lack of it will absolutely stop them from doing business with you.
A top-notch digital account opening tool offers four concrete benefits:
- Improves the user experience. The Digital Banking Report found that unless your institution can open a new account in less than five minutes, the potential for a customer or member to abandon the process goes up to 60 percent.
- Increases conversion rates. If fewer consumers abandon the account opening process, then more of them create funded accounts and every marketing dollar you spend driving traffic is more efficient.
- Boosts compliance with KYC regulations. By relying on a standardized, automated KYC process that’s built into the onboarding process and configured according to the product or your financial institution’s needs, you reduce the risk of missing a step and running afoul of the regulators.
- Reduces costs. Consumers want to open their accounts online. That means your team spends less time entering data and processing paperwork. A fully digitized onboarding process supports greater automation and reduces the manual work associated with each account opening.
If you haven’t audited your onboarding experience recently, there’s no time like the present. Eliminating any friction in the process today will pay dividends for years.
Deposit growth in 2024 requires a ’both/and’ approach
Optimizing product offerings and marketing initiatives will be essential in 2024, but so is building the infrastructure to open accounts quickly and securely.
Even if you’re staring down the barrel of 2024 and wondering how you could possibly grow, don’t despair. As Charles Kettering, head of research at General Motors from 1920 to 1947, said, “A problem well stated is half solved.” Take the time to understand the challenges you face, and the solutions will become much more apparent.
Shaw Taylor is senior vice president of marketing and sales at Bankjoy, a fintech which offers digital banking tools including mobile and online banking, online account opening and online loan applications.