D How Banks Can Win the Battle for Deposits By Bob Koehler, Chief Innovation Officer at SRM (Strategic Resource Management) Deposits were already top of mind for banking leaders before the recent bank failures. The fallout from those closures has heightened bankers’ awareness of concentration risk, managing liquidity, and the importance of having a diversified deposit portfolio. Financial institutions have felt pressure to attract and retain deposits for several months. 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 have the capacity to 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 that they can tailor products along those lines. For instance, groups like homeowners’ associations often have large deposit accounts. Colorado Banker 24
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