In a previous post, I discussed the value of using credit scores and deposit behavior scores together within deposit account management strategies—particularly as more banks extend forms of credit to deposit accounts to deepen customer relationships. Banks using this dual-score approach have found success with several key best practices.
Customers who are not risky with you or other institutions—in other words, those with high behavior and credit scores—are the cream of the crop. They should be given preferential treatment, such as the best pricing, a private banker, refined communications strategies, rewards programs to reduce attrition, and offers for additional deposit products (e.g., money markets, IRA, mutual funds, mobile banking). The better able you are to build wallet share, the more you protect yourself against funds leaving your bank.
Customers who are less risky with you (high behavior score), but more risky with other institutions (low credit score), may mean they are loyal to your bank and contribute to your profits. Still, caution should be taken when extending credit instruments tied to deposit accounts, since these customers are known to have spotty credit usage with other institutions. Be sure to enforce collateral requirements, double-check appraisals, and enforce the terms of the product. When managing your portfolio of deposit accounts, these customers have the potential to self-cure if they bounce a check or overdraw their account, but it’s worth keeping an eye on them for continued signals of financial distress.
It's possible that customers who have had spotty behavior with you (low behavior score) but exhibit less risky behavior with other institutions (high credit score) may not be pleased with products and services offered by your bank, and have a greater propensity to attrite. To strengthen retention and loyalty, you may choose to offer products that would be seen as valuable and strengthen your relationship, explore ways to make banking more convenient and offer better service.
Knowing that these customers are better at paying off debts with other institutions before paying you may also prompt you to examine your overdraft strategies. Consider such a customer’s experience with your bank. Have you granted credit available on-demand to those with low utilization, while at the same time placing holds on deposits or declining overdrafts well within the limit of the available credit?
Of course, customers who are risky with both you and other institutions deserve the most cautious strategies. These include deposit holds, accelerated collections when a payment is missed, and the need to enforce fee assessments.
Have you uncovered other best practices when managing DDA? I welcome your comments.
