Key points:
- Banks invested heavily in deposit technology in 2022.
- Credit union leaders cite digital account opening as the most member-requested tech upgrade.
- Deposit pricing competition is already visible in the marketplace.
- Loan activity brought on by low rates opens doors for deposit cross-sell.
- Institutions report a double opportunity to grow deposits while driving a much greater return on investment.
Savers have had a very hard time of it for 15 years. Since the Federal Reserve began using interest rates to stimulate the economy through borrowing, those looking to accumulate money rather than borrow it have had only the S&P 500 and alternatives (like cryptocurrencies) for returns much higher than 1%. Many depositors — hesitant to risk savings on equities — have simply opted to park cash at a financial institution.
With 54% of bank leaders saying they bought digital retail account opening technology in 2022, according to Bank Director, banks have a greater capacity to serve what’s lining up to be a depositor movement boom.
Recent polling of credit union leaders shows the top requested digital and mobile banking feature by members is account opening. Larger institutions are more likely to have the budget to acquire the technology members are asking for. While correlation is not causality, the only credit unions to see significant growth in membership in the second quarter of 2022 were those with more than $1 billion in assets, growing membership by 8%. Those between $500 million and $1 billion saw a small decline of 0.5%. Depending on the segment, all others under $500 million reported an average of 7.8% in membership declines.
Looking at what is already an increasingly competitive landscape with savings account rates nearing 3% in the offerings of certain institutions — and 12-month CD rates approaching 5% — savers will take a fresh look at where they invest their capital in the year ahead. For those who want to become first-time homebuyers, create a rainy-day fund, or prepare for near-term retirement, higher rates on deposit products are manna from heaven. With recent terrifying news in cryptocurrency, and the bears wreaking havoc in the stock market, where customers land with their cash will be determined in part by how easy it is for them to move their money to FDIC-insured accounts with attractive returns.
Borrowing has opened doors
The rate environment of the past 15 years also has stimulated historic levels of borrowing. Across the spectrum of consumer credit, people have borrowed more from their institution, and from institutions generally. For example:
- Credit card lending has reached new highs.
- Auto loans are at record highs.
- In general, consumer loans are also setting records.
- With home equity loans still depressed and household equity remaining at historic levels, some consumers will seek even more “new relationships” in the coming months.
Why is consumer borrowing important for deposit trends? Many consumers now likely have a broader array of financial institution relationships. To pay their loan payments, they may also utilize those institutions’ mobile apps or online banking. They are in the door at those other institutions. Now those lending relationships can be easily leveraged into connections to steal other institutions’ depositors.
So now what? Banks and credit unions have varied approaches to deposit growth in the year ahead. Most institutions will still turn to branch banking for market expansion, with 57% of leaders saying branches are equally important to their institution’s growth strategy. Others are increasing their rate offering now to get ahead of the curve with the national savings account rate rising by four times since May. Some plan to use digital brands to reach new segments or drive efficient growth. Most are investing in a more personalized customer experience across the organization’s tech stack. All are leveraging technology to create more competitive and efficient processes.
Success at the endpoint
Given banking leaders’ expectations for deposit competition and movement, investment in account opening technology makes a lot of sense. All the tactics listed above support deposit growth only when they result in real and funded accounts. Banks and credit unions are realizing, though, that not all “open” accounts are created equal. In fact, an institution can succeed at finding new accounts, and fail at deposit gathering.
Leaders are often unaware of what it has cost them in operational drain and missed opportunities to reach a deposit growth goal. The true calculation for their return on investment is new deposit volume, but it also includes cost of marketing conversions, number of funded accounts, process efficiency, cost of funds, branch expenses, and incidence of fraud.
Institutions are now waking up to a double opportunity: To serve more new depositors and to do it with a much greater return on investment. What is that opportunity? How have peer institutions improved their returns?
The right technology is key. To learn how MANTL can help you capitalize on the depositor opportunity boom, schedule a demo today.
