Growth in Deposits Presents Opportunities and Risks

The American Banker today had an article detailing the recent trend of low cost deposit growth experienced by the major banks in the fourth quarter of 2009. According to KBW Inc.'s Keefe, Bruyette & Woods, the top 40 banks experienced a deposit growth rate of 8% in the quarter, with only a couple large banks intentionally allowing higher-cost deposits inherited during acquisitions to run off during the year.

Even though interest rates remain extremely low, consumers were still saving at a rate of 4.7% as a percentage of disposable income in November, according to the Bureau of Economic Analysis primarily due to uncertainties in the marketplace and due to the view of banks being the safe harbor for funds accumulated during a time of reduced spending.
While bank revenues will not return to high levels until consumers begin to borrow again, productive deposit gathering should help banks lessen the impact of the Obama administration's proposed "financial crisis responsibility fee," which would subtract government-insured deposits from the covered liabilities on which the 15 basis-point tax would be based.

There is an opportunity and risk associated with this deposit growth however. For banks that have well developed onboarding and cross-sell programs in place, this deposit growth and the resultant increase in new accounts provides a tremendous foundation for developing long term relationships with an enhanced ROI. In addition, with households continually evaluating where to place their funds, firms with aggressive aquisition programs will benefit the most.

Conversely, those organizations who become complacent during this time of deposit growth could risk seeing the deposit growth over the past 15 months evaporate, moving either to other banking organizations or eventually to the equity markets as the economy grows stronger. I am recommending that my clients continue to focus on deposit acquisition programs and reach out to those new households they have recently acquired or households who have expanded their relationship and further secure the relationship through insight gathering, engagement programs and improved retention processes.

Eventually, it is expected that consumers will become more confident and will seek additional investment and savings options. When this occurs, it will be those organizations with the best customer experience and strongest relationships that will lose the least.

Building Long-Term Deposits and Relationships Automatically

Over the past several years there have been a number of financial institutions that have built automatic savings programs where customers can set goals, establish recurring transfers between accounts to fund the goal(s), and track their savings progress.

One of the first programs developed was the Orange Savings Account from ING Direct which greatly simplified the process of opening new accounts for various savings goals. Following the success of the Orange Saving Account, SmartyPig was another program with that same goal in mind, making it easy for a customer to setup savings goals.

A customer can name their accounts, set the deadline for reaching their goals and even use an interactive calculator to determine the amount they will need to set aside each month. What makes Smartypig unique is that they added a social element to the mix . . . allowing other people such as friends and family members to contribute to the customer's goals as well.

The customer can even place a widget on their Facebook or MySpace page. Once the customer reaches their goal, they can either put all of your savings plus interest on a debit card, have it sent back to their bank, or receive bonuses by having the amount placed on a gift card from participating merchants like Macys, Amazon, Best Buy, etc.

While SmartyPig brings unique technology to its enterprise, it remains a one trick piggy (offering only savings accounts) and is a still-small Internet start-up. Being able to grow a savings account product from $0 to $500 million in deposits in less than two years is a phenomenal feat but its success can be assailed.

Full-service banks have begun to copy some of SmartyPig’s basic features and leveraged their own new savings features. For instance, U.S. Bank introduced the S.T.A.R.T. (“Savings Today And Rewards Tomorrow”) program in late 2009 in test markets, giving a $50 Visa gift card to a customer depositing $1,000 or more into a U.S. Bancorp money market savings account and establishing a monthly transfer from their U.S. Bank checking account. If a customer chooses to transfer between $.25 and $5.00 from their checking account into his money market savings account each time he uses his U.S. Bank debit or credit card, the S.T.A.R.T program counts those toward program term fulfillment.

In addition, customers maintaining a minimum $1,000 balance in the new savings account for 12 months will receive another $50 bonus, while U.S. Bank is offering another $100 bonus for establishing an automatically funding savings account tied to the bank’s standard checking account.

Building new products that encourage a long-term savings perspective supports the current trends toward more conservative money management while providing tremendous opportunity for additional cross-selling and relationship building. I fully expect more banks to develop both online and offline savings alternatives and to use these products as part of their onboarding and lifestage communication processes.

Now's the Time to Build Retirement Dialogue With Your Customers

In yesterday's post, I discussed the significant deposit growth being experienced by major banks and the opportunities and risks that can be associated with an economic environment of uncertainty. An often overlooked opportunity for account acquisition and relationship growth is delivering on consumer's retirement needs.

Now is the best time to reach out to customers and prospects in your market area and position your institution as the safe and secure place to place their retirement assets. And with retirement assets approaching $20 trillion, the opportunity is significant.


According to a 2008 study conducted by BAI Research and Mercatus LLC there were five key ways to be successful in the retirement market: (1) Position your bank as the local retirement specialist, including retirement dialogue in all relationship building conversations and providing a varied and competitive product offering; (2) Provide online information and tools that allow the customer to manage their retirement planning in much the same way as is done by current 401K providers; (3) Demonstrate problem solving capabilities around helping customers diversify and provide the tools for decision making; (4) Deliver a positive branch customer experience that relates to the retirement customer from a knowledge and retirement focus perspective; (5) Provide competitive and transparent pricing which reinforces the trust a customer must feel to transfer retirement funds to your bank. A summary of the most important factors is illustrated on the attached link.

With most consumers still very leary of the equity markets and still in the process of reviewing their current 401K providers, there has never been a better time to build a proactive retirement saving strategy at your institution. Not only should this strategy be implemented in the prime contribution periods from January - April, but throughout the year as consumers continue to move funds to protect their retirement nest egg.

Capital One Continues to Innovate

Historically an aggressive marketer and innovator in the credit card industry, Captital One has expanded its reach in recent years, using their growing banking franchise as the foundation for introducing innovative banking products. In addition to having a relatively rich debit rewards program and expanding into online and small business banking, they have recently introduced a new savings product called "InterestPlus Online Savings".

The saving program offers an above market interest rate on balances over $2,500 in addition to a 10% quarterly interest bonus payment paid if the customer uses their Capital One credit card once a month.
The bonus can also be earned if the customer maintains a minimum balance of $15,000 each month. The bonus for using the credit card is similar to other promotions done by Captial One in the past 12-18 months to cross-sell services and relationships off their credit card foundation.

The promotion of the new service began in December of last year through the bank's web site, statement inserts, direct mail and with email according to Comperemedia. Using strong visual elements such as comparative bar graphs and icon buttons similar to what I have seen with ING mailings, it is clear that Capital One plans to leverage their strong marketing talents from the credit card industry in building a strong bank brand.

Chase Introduces Instant Action Text Alerts to Allow Customers to Avoid OD's Immediately

In the February 2010 Javelin Strategy and Research report on financial alerts, some of the major flaws of current alerts included difficulty of setting alerts up, lack of timeliness, not actionable enough and poorly marketed. In addition, the research found that one of the highest utility features from both a customer and bank perspective is the ability to alert and respond to potentially insufficient funds.

Expanding on their very popular low balance alert mobile banking feature, Chase Bank just introduced a new feature that addresses many of these flaws by allowing customers to easily respond to a low balance alert from the bank by immediately transferring funds through text messaging.


The new feature will allow customers to transfer funds from any eligible checking, savings or money market account simply by typing the letter "T" followed by the dollar amount of transfer desired (for instance, to transfer $100, the customer simply types "T 100"). If the customer has more than one eligible account with adequate funds, both accounts with the balance available to transfer will be shown, along with the option to use either account to fund the low balance account.

To be eligible for this service, a customer simply needs to be a Chase Mobile customer, have the ability to send and receive SMS texts, and sign up for the Instant Action Alerts. As an added benefit, the customer can even set the time they want to receive notification during the day.

While not promoted on the Chase homepage as of this writing, an animated landing page (shown above) is being used in conjunction with Google AdWords using search terms like "overdraft alerts" and "mobile banking alerts".

Payments innovation is becoming more and more commonplace with Chase Bank as indicated in several of my Blogs this year, including the introduction of Chase Blueprint. These innovations in most cases enhance the customer experience while also reducing operating costs. It will be interesting to see what other innovations are on the way from Jamie Dimon's team.