Customer Development
The need to attract deposits to fuel your bank’s loan operations is essential for a growing and profitable bank. Attracting and retaining deposits has followed a similar strategy across the banking landscape for many years. Banks attempt to “lure in” additional deposits with an attractive promotion, often in the form of a high interest rate that naturally eats into your net interest margin.
In the pool of potential customers, some will bite on your incentive. A high rate is likely to reel in deposits, but that has an impact on your margins, especially if the customer swims away after the promotion, leaving you with more costs than deposit liquidity. Truth be told, rate does not have to be the only fly in your box to attract customers. Let’s explore the fishing analogy a bit more—trust me, it’ll be worth it.
The Federal Reserve’s Survey of Consumer Finances in 2016 indicates 76 percent of families have at least $400 in liquid savings. Only 40% of families have liquid savings equivalent to at least three months of expenses. Many savers simply don’t have the balances to benefit from high-yield promotions. There are more prospects (fish) that are emerging savers than clients with large savings balances. And, these emerging savers may find benefits other than rate more appealing and motivating.
If you fly fish, you know that you use different flies based on the type of fish, time of day, casting conditions, water structure, and season. Emerging savers will often have varying goals for saving, and the incentive (like the trusty caddis) just simply may not be too motivating. For example, if your goal is saving for your next vacation, today’s highest yields will only make a minor dent in your savings goal. Airline miles, roadside assistance, entertainment coupons, and cash can be much flashier and more attractive to a saver, enticing them to firmly “bite” on your offer. Banks that leverage a price execution platform (PEP) can easily provide rewards that motivate savers, delivering a lot more tugs on the line. And, these benefits are often more affordable than the interest expense with a high-yield promotion. Like a well-equipped fly box with a colorful array of wet and dry flies, banks can introduce incentives by season to keep customers engaged. All good anglers know that you must test a few flies to see what works. Test, experiment, and see what rises with good presentation.
Traditional banking-reward models are no longer enough of an incentive to lure the customer of today. Ilich Martinez, CEO of Camino Ventures and former Bank of America Executive said, “With today’s market conditions, banks are not capable of using interest rates as a sole attractor or differentiator. There is evidence that shows that customers have never been more comfortable moving their financial relationship from one bank to another than they are today. We will begin to see an emergence of pioneer banks that will provide rewards to customers in non-traditional and personalized ways. Those who do so successfully will thrive in today’s competitive and largely commoditized banking landscape.”
Imagine a future where your bank staff is bursting with excitement regarding a new reward. Can you hear the stories and possibly a few (mostly true) “fish tales” now? Increasingly important, these programs are designed to help customers reach their financial goals. You become a trusted partner on the customer’s journey toward optimal financial health. It’s a win-win venture—the results drive growing balances and satisfied customers, without reducing the interest margin to your deposit portfolio. As for our catch-and-release fly fishing, the angler gets the immense satisfaction of catching and releasing a beautiful fish, while the fish gets a little wiser and even more (maddeningly) elusive. With the right strategy, your customers need not be so hard to attract.
