Curinos was pleased to welcome senior retail banking leaders from deposits product, pricing, finance and balance sheet management from more than 15 financial institutions to its Retail Optimizer Forum for 2024 in Dallas/Fort Worth, June 11 and 12. Guests, representing Curinos’ current customer institutions, got an in-depth look at Curinos data, platforms and insight capabilities and engaged with Curinos deposits-industry experts, and each other, on how to think about and plan for the complex problems facing retail financial institutions at this time of great economic uncertainty. (Explicit care was taken to avoid disclosure or discussion of institution-specific pricing.)
Participants were able to engage Curinos deposits industry experts and their peers in understanding the state of the union in deposits, and they advanced their understanding of Curinos platforms and data through interactive sessions with platform support leaders. In addition, participants engaged with Curinos product and platform development to provide feedback on existing capabilities and got an early peek at future enhancements such as scenario building and AI. From the presentations and discussions, the following themes came through loud and clear among the participants.
1. The state of retail deposits remains dynamic: competition will continue and will challenge bank and credit union P&Ls and stretched deposit organizations.
Competition for rate-based deposits remains strong amid top-of-market acquisition rates of around 5%. The Fed has signaled no more rate increases followed by rate cuts, but the timing for any downward actions continues to be put off. Most FIs had three to six reductions baked into their plans. Top-of-market acquisition rates have pulled back but portfolio rates continue to rise. According to Curinos’ Retail Deposit Analyzer, portfolio rates have increased 54 bp since the Fed stopped raising rates in July ’23, as remixing continues because of higher-rate CDs, back book repricing and the ongoing higher expectations of consumers. Most of the pandemic-led excess deposits have run off and banks are seeking to get back to business-as-usual growth.
Key takeaways include:
- Because of continuing delays to rate cuts, competition for deposits will continue to pressure bank P&Ls.
- Deposits product and pricing organizations are under-resourced to manage such a dynamic environment for deposits and may benefit from leveraging Curinos industry experts to accelerate impact in a fast changing environment
2. We are in the “new” era of CDs. They will remain front and center, with significant value at stake.
CD volumes and rates are highest they’ve been in two decades. To manage CDs effectively, institutional memory and experience at most retail organizations – from product and pricing to finance and treasury to field sales – need to be refreshed. While their acquisition volumes have slowed, CDs will remain at the forefront, with more than $1.8T of CDs renewing in the next 12 months and 10-20% of CDs maturing every month as durations have shortened. A data-driven strategy to managing CD-renewal behavior, with a deeper understanding of non-price factors such as customer preferences, behavior and bank practices, can make a 21% difference in balance retention and a 33% difference in cost.
Key takeaways include:
- CDs remain front and center. With historical acquisition and renewal volumes, near-5% prices will continue.
- Significant value is at stake: FIs can generate immediate measurable and tangible value by fine-tuning their CD acquisition and renewal strategy, and they need to adapt with the monthly renewal volumes.
- Curinos Retail Deposit Analyzer and Retail Deposit Optimizer can help. They have industry-leading capabilities including custom weekly term renewal reports, study breakage outcomes, customer-relationship impact, elasticity curves and scenarios analysis.
3. Marketing is a key enabler for managing deposit pricing, and deposit growth requires a better partnership and coordination with marketing spend.
Because of the historically low rates of recent years, marketers haven’t cared much about deposits or how they work. Even now, marketing spend on MMAs and CDs – currently the #1 growth drivers – remains small and around 2bps of deposits, even though it’s up 3.3x. Banks need to consider interest expense and marketing holistically in their mCOF calculation. A common challenge banks face is that marketing spend and interest expense are managed through different organizations and different budget line items requiring CXO level engagement to overcome siloed thinking. Marketers typically measure response rate and CPA. While these metrics may make sense for checking accounts, they don’t for balance growth. If deposit growth is the goal, cost per deposit is a better metric, and using mCOF is better still because it takes into account repricing and retention.
Key takeaways include:
- Curinos platforms enable growth strategy analysis including marketing spend. Additional tools and data available include cash-offer analysis dashboards.
- Customer scoring and AI-driven personalized marketing capabilities like Curinos’ Amplero Personalization Optimizer can increase the return on marketing spend.
4. Digital banks continue to take share, and the trend continues in 2024.
Direct bank market share is currently 21%, as growth picked up in Q1, and there’s still room to grow. Most digital banks continue to focus on rate-based deposits and have not taken share in primary checking. But fintechs continue to take share of new accounts, if not large share of balances, especially among younger consumers (18-25), according to the latest Curinos U.S. Shopper Survey – about 10% of purchasers, for example, cited Cash App as their primary account. And fintechs are expected to continue to innovate to make these relationships stickier and deeper.
Traditional banks wonder, with a mixture of optimism and anxiety, whether the preferences of customer will revert to traditional banks as they age and experience more complex banking needs. Could this be the “Square merchant services” moment for checking? That’s when a fintech took the unwanted small customers that banks ignored and then became mainstream and a known, trusted brand that dominates point-of-sale merchant processing.
Key takeaways include:
- Curinos Retail Analyzer and Curinos Retail Optimizer enable banks to analyze digital direct bank performance, pricing and strategies alongside the branch and channel strategies of traditional banks
5. Forecasting deposits is a completely new game and much more dynamic. It requires data-driven scenario planning with alignment across finance, treasury and the deposits line of business.
Compared to the predictable, even boring, growth days of several years ago, forecasting has become dicier, and much more critical, spurred by significant volatility from 2020 to 2023 induced by the pandemic surge followed by rapid runoff – to say nothing of an environment of high Fed uncertainty. Curinos forecast of potential Fed rate decreases is in the 1 to 3 range in 2024 – with the first decrease in December. Banks need to be prepared in case the Fed doesn’t decrease rates until mid-2025. Even though rates may remain flat, deposit rates may increase two bp per month because of remixing, further affecting profitability. FIs need to consider controllable and non-controllable variables, and plan with a high degree of precision, yet be ready to change as the environment changes.
Key takeaways include:
- Banks need to plan for their priorities and account for many variables: scenario plan, track and measure and be ready to switch strategies.
- Curinos Retail Optimizer allows banks to model for controllable factors, with economic variables and assumptions as inputs, and run different growth scenarios.
6. Strategic insights from Curinos experts and Retail Deposit Analyzer and Retail Deposit Optimizer platforms can empower a bank to outperform in this highly dynamic environment.
Examples from the platform include custom term deposit renewal reporting including early breakage, weekly maturities, relationship vs. non-relationship customer behavior and pricing strategy elasticity curves. The capabilities include more self-help through a more intuitive eHelp, periodic forums for demo and self-service Q&A.
Key takeaways include:
- Platforms enable calculation of mCOF to drive prioritization of strategies and scenarios by impact
- Marketing costs are included in the mCOF calculation, including costs of cash offers.
7. Curinos continues to invest in platform capabilities including AI and seeks to elevate end-user engagement.
Key capabilities include dashboards for cash offers and CD balance flows and new planned features such as Liquid Promo Expiration Schedule and Scenario Builder redesign. Attendees provided feedback on design and prioritization, such as additional customer segmentation to spot behavior differentiators such as relationship depth, single CD ownership and price sensitivity.
Key takeaways include:
- Enhanced communication of new-feature release: Outbound email announcement, push notifications, monthly Analyzer communication, quarterly webinars and other standing forums to embed updates on features that were delivered and what’s coming next.
- Considering creating a bank user group and an advisory board with annual rotating membership.
