From “How to Optimize Down-Pricing in a Falling Rate Environment,” a Curinos webinar presented on September 24, 2024, in conjunction with Consumer Bankers Association featuring Curinos managing directors Peter Serene and Robert Warnock.
With the Fed having cut rates in September, banks and other financial institutions are eagerly awaiting a reprieve in funding costs. But in prior cycles, deposit costs have proved stubbornly slow to come down. So even though banks are eager to recoup some of the net interest income that’s been squeezed out, doing so entails risks. That’s because the moments when rates change tend to go hand-in-hand with heightened money in motion. So how banks manage the early stages of a falling rate cycle has a big impact on how quickly they’re able to recognize the benefits they seek.
Here are five market indicators followed by five strategic imperatives for financial institutions looking to capitalize on today’s falling rate environment:
Market Indicators
1. Well over half of all CDs will mature in the next six months.
The volume maturing will exceed $2.1 trillion in branch and direct banking institutions over the next year – 93% at branch banks and 86% at direct banks – and most will be reinvested in CDs, at a higher rate. Average 12-month maturity rates for branch banks average 4.38%, but acquisition rates are at 4.70%.
CD Maturities in Coming 12 Months
Source(s): Curinos Optimizer, SNL Data
Note(s): Simple averages displayed.
2. High-rate CD offerings have fallen in anticipation of Fed cuts – the start of a shift away from aggressive CD pricing.
With greater certainty of Fed rate cuts, traditional banks have reduced their offerings of increasingly higher CD rates, with some removing very high (500 bp+) rate offerings. Meanwhile, FIs have continued to be slow to offer higher savings rates, with just over 50% offering a rate of 2.00% or more. While savings offerings are still increasing, the rate is as slow as it was in H2 2023 and continues to be far from the pace reached in H2 2022.
% of Banks Offering CD at
Indicated Rate
Apr ‘22 – Aug ‘24
% of Banks Offering Savings/MM at
Indicated Rate Apr ‘22 – Aug ‘24
3. On their CD portfolio, 56% of banking institutions have reduced rates since their peak levels, as down-pricing becomes a priority.
While some continue to price CDs for growth and strong retention, many banks have been lowering rates well in advance of a falling rate environment. Nearly one-quarter have reduced CD portfolio rates by more than 10 bp compared with their peak rates. Meanwhile, more than one-third of FIs are seeing declines in savings portfolio rates. In Jan ‘24, most of these banks had portfolios that were competitively priced, but after reducing rates, now have a weighted rate of only 4.00%.
Savings Portfolio
Rate Trend
CD Portfolio Rate Trend
CD Portfolio Rates
2024 YTD
Click images to enlarge
4. Customer preferences and behaviors are shifting, creating opportunities for those who can adapt the fastest.
Rate moves may accomplish short-term funding goals, but the most important long-term driver of customer and member profitability is primacy. But to attract and retain profitable relationships, FIs need to stay on top of changing behaviors. For example, customers across all segments prefer digital account openings, but the quality of accounts opened digitally significantly lags those originated in branch and they attrite at a much higher rate.
Consumer Preferences are Shifting toward Digital
Opening Channel Preference (By Income)
Deposit Balances
(By Origination Channel)
Account Retention by Channel (Consumer – New to Bank)
Source(s): Curinos Analysis, CML Analyzer, 2023 US Shopper Survey
5. Fragmentation of the customer wallet and surging CPAs raise the stakes for precise and intentional acquisition efforts.
The customer wallet is delaminating. In the last five years, the average number of checking accounts held by some customer segments has grown by as much as 71%. Meanwhile, the cost to acquire a new checking customer has ballooned to $700, up from less than $300 in only four years. So while primacy is being eroded by an increasing number of bank relationships per customer, the cost of securing that devalued primacy is skyrocketing – a double-dosed challenge for financial institutions.
Banking Relationships – Trended
Average Checking
Accounts Per Customer
Average CPA
Consumer – New to Bank
Source(s): 2018/2021/2023 Curinos US Shopper Survey | 2018/2021/2023 Curinos US Business Banking Survey | Curinos Marketing Analyzer | Kantar | Comperemedia | Curinos Analysis
Note(s): Excludes sponsorship spend | Average CPA for full Marketing Analyzer participants | Mass Market = Household Income less than $100k; Mass Affluent = Household Income greater than $100k
Strategic Imperatives
- Manage funding with fierce precision.
Get a better understanding of pricing and value differentiation between deposit pools and how to optimize around them. As part of that imperative, deploy granular a segment-based pricing strategy that is informed by near-real time data-founded intelligence on market rates. Where warranted by segment – wealth, for example – and specific accounts within those segments, manage exception pricing with discipline and align it closely to customer value and profitability.
- Prioritize primary customer growth.
Primacy, especially through early funding, continues to be the key to retail profitability, and the right analytics to sell the first product have made that easier Then the relationship needs to be deepened through differentiated products and personalized precision. Winning primary relationships on the commercial side requires a laser focus on cross-sell and targeted acquisition.
- Right size the investment levers.
Optimize the branch network and engagement model to drive more effective growth, keeping in mind that accounts opened face to face have larger balances and last longer. Sharpen the pencil on marketing and apply the precision to segments and geography. And automate backend processes through technology and AI. The industry is learning where AI can best be applied, and that’s where the investment dollars need to go.
- Catalyze non-interest revenue growth.
Value exchange across segments needs to be reimagined, and fees need to be structured accordingly. In an environment of declining retail fee revenue, monetizing investments in treasury management will be essential, through disciplined pricing increases and more effective cross-sell to improve penetration.
- Develop meaningful digital experiences.
Improve the quality of digitally originated relationships through optimizing the onboarding experience. With incidents of fraud mitigating – much improved in recent years – think about how the best of the personalized experience can be replicated through digital. Be early with direct-deposit sign-ups, and put the debit card in the customer’s hands as soon as possible. And continue strategic investments in digital capability for business clients to compete effectively with the maturing set of fintech alternatives.
