Winning the War for Deposit Growth

Regional banks’ deposits are under siege. And if you read our first blog on this, you might have some idea why.

From one side, the Big 3 approach and build challenger banks. According to M&T Bank CFO Darren King, the Big

3 “built an M&T”. M&T is a Buffalo, New York-based bank with over $117B in total assets—they experienced a 6% drop in deposits in Q1 2018, largely caused by competition from JPMorgan Chase, Bank of America, and Wells Fargo. If they could do this to a bank with over $100B in assets, where does that leave banks with less than $10B?

From another side, mainstream technology brands continue to make outright forays into banking. Amazon already allows customers in India, who prefer to pay with cash, to bank their change as a credit to their next purchase. They can use their account balance as a credit to new purchases or, through partner websites, to pay off their Internet or electricity bills. While culture may prevent Amazon from executing a similar strategy to the U.S., they have still brought banking to a number of customers who would have otherwise likely stuck with their local bank.

Perhaps most disturbingly is the effect that these deposit growth shortfalls have on lending: starved of the resources they need to grow, Darling and Associates reports that banks under $10 billion in assets have not been able to sufficiently fund loans for the past three years.

If deposit growth is a war, then the profits from lending represent supply lines–with stagnant deposit growth having capped these banks’ lending ability for so long already, their ability to act and react will only become further constrained. If this continues, regional banks run the risk of being cut off and overrun by their competition.

Regional banks will be fighting battles on two fronts, with the Big 3 banks laying siege from one direction and the Big 5 tech companies marshaling their troops from another. All of this combined with shrinking lending revenue means that regional banks need to carefully choose the weapons they counterattack with.

The tide of the battle can be turned with an all in commitment to personalization. Personalization will allow regional banks to increase revenue, decrease costs, and provide the kind of customer experience that will help them not only regain the ground they’ve lost, but seize new territory altogether.

Going All In On Personalization

Personalized client offerings require data, a resource that banks have in spades. Yet according to the Digital Banking Report, 94% of banks can’t offer anything more than the bare basics on personalization. Customers want “contextual, personalized insights and solutions.” Less than 20% of surveyed institutions were able to provide personalized offers, and less than 10% can provide “real-time spending analysis or advice based on activity.”

Consumers crave personalization. The Boston Consulting Group reports that 83% of people believe personalization is important, very important, or the most important factor in determining whether they will deepen an existing banking relationship.

There are limits to personalization, and more data doesn’t automatically mean a deeper relationship—Facebook is the flag bearer of what happens when a service knows too much and borders on “creepy”. But while many people are trying to reign in how much they share on Facebook, they would be excited for their bank to do something with the treasure trove of information they already have access to.

Indeed, personalization is likely to soon drive banks into a corner, as a tailored experience is seen as both a significant relationship enhancer, and something that should already exist. According to a 2017 Accenture survey, “48% of consumers expect specialized treatment for being a good customer.”

Overstating the importance of personalization in the deposit growth arms race is difficult. A great soldier once said that knowing is half the battle; a greater man said that the other half is doing. This is where Zafin can help.

Personalization in Practice

Zafin Cloud allows your bank to target segments as small as one customer. Personalization cannot proceed without compliance, which is why Zafin Cloud has the built-in offer governance, compliance, and lookback ability necessary to scale such an ambitious marketing program.

Sitting on top of a bank’s core systems, Zafin Cloud allows banks to design offers with unprecedented specificity. If a bank wanted to, they could target 25-year-old car salespeople in Poughkeepsie, NY, or 37-year-old lawyers in Milford, MA. They could offer a one-time incentive of $1,000 to people who keep at least $15,000 in their savings account and have a monthly minimum credit card spend of $3,000.

Zafin Cloud compiles the segment based on the bank’s criteria, monitors the targeted customers, and automatically disburses the incentive if the offer criteria are hit. With offer documentation automatically shared to a bank’s customer service representatives, banks can maximize both external transparency and internal defensibility.

Offers in Zafin Cloud take only as long as your bank’s approval process. Zafin Cloud allows you to deploy new offers to market in days; when you consider that most banks start planning promotions 12-18 months in advance, you understand that in the war for deposit growth, Zafin Cloud could very well be the silver bullet.

It’s Time to Fight Back

It’s one thing to have data. It’s quite another to be able to use it effectively. In the words of General George S. Patton, “A good plan…executed right now is far better than a perfect plan executed next week.” Regional banks are in a unique position in that combines the banking competencies that tech companies lack with an agility that national banks can’t match, not to mention the data they need to succeed.

Senior Well Fargo Analyst Mike Mayo says that, “Goliath is winning…it could be a slow death for some of the smaller regional banks.” We know that regional banks are not aiming to just scrape by. Their ambition is to win the war. Zafin is proud to offer banks like this the technology to make their ambitions a reality.

If you’re ready to fight back, request a demo to learn more.