How banks can win the battle for deposits

Deposits were already top of mind for banking leaders before the recent failures of Silicon Valley Bank and Signature Bank. The fallout from those closures has heightened bankers’ awareness of concentration risk, managing liquidity and the importance of having a diversified deposit portfolio.

For several months, banks and credit unions have been feeling pressure to attract and retain deposits. A rapid increase in interest rates has led to more deposit outflows – a reversal from previous years, when the challenge was more about finding ways to put large amounts of liquidity to productive use.

Successful banks will devise strategies to attract a wide array of deposits, particularly retail accounts and those tied to small businesses. Doing so can help them weather challenging times by avoiding situations where all or most of their eggs are in a single basket.

Institutions should consider the following tactics to maintain a highly diversified deposit base.

Use data and analytics: Deposits from individuals and companies are a vital, affordable source of capital for loans. And when they are appropriately priced, deposits – including certificates of deposit with mid-term commitments – provide depositors with sufficient income that reduces or even eliminates the need for frequent “rate shopping.”

With each rate increase, depositors anticipate receiving a higher return on their investment. Enticing rate offers are now appearing on social media, a channel that barely existed the last time there was fierce competition. In other words, customers are fully informed of their options. Therefore, banks need to advertise with this new media, reminding customers they are a viable option.

To compete more successfully, banks should extend the greatest offers for customers who can engage across various items over the extended horizon. Banks should be able to identify these opportunities and remain competitive using the internal and external data that is already available.

All financial institutions should monitor the market to understand competitors’ moves, but segmentation could be a difference maker in standing out. Banks must develop strategies based on niches, such as specific industries (one such example is medical professionals), demographics, spending patterns and the like, so they can tailor products along those lines. For instance, groups like homeowners’ associations often have large deposit accounts.

Extend the focus on small business: It’s crucial to remember that, when a banking institutions is trying to draw and keep the most deposit amounts, business accounts frequently have more significant balances than retail customers and members. Since there is a good likelihood that some of these retail depositors run small companies or participate in the “gig economy,” banks should examine the portfolios of these customers, as some will probably have mom-and-pop businesses or “side hustles.”

Additionally, banks must assess their lending partnerships for potential deposit offerings. Deposit accounts can also be produced by designing specific business accounts with important demographics in mind, focusing on features, prices, rewards, and more. Numerous prosperous small enterprises will expand into midsize corporations with even larger balance sheets.

Train the customer-facing staff: The finest brand ambassadors are frontline employees, so they must receive the correct training – this includes developing active listening skills to identify opportunities quickly, ask the right questions and reply with pertinent, customized offers. A significant portion of banks’ frontline staff likely has never been in this type of banking environment, so they must be partnered with seasoned team members for adequate training.

Employees also need a response plan for those moments where there is uncertainty. Clear communication can go a long way toward maintaining confidence among the depositor base.

The capacity of banks to hold onto and even increase deposits will be a differentiator as balances are under pressure, especially when demand for loans recovers. Banks should be comfortable knowing that securing inexpensive deposits will help them avoid margin pressure.

Bob Koehler is chief innovation officer at Strategic Resource Management (SRM)