Welcome to the Winter 2024 issue of the Curinos Review.
The Year of Deposits. That’s how Curinos views 2024 – how to get them and how to keep them at a cost that preserves net interest margin and profitability. For this reason, we’ve dedicated the core of this issue of Curinos Review, “Positioning for Success in 2024,” to strategies for optimizing deposits, and deposits will continue to be the dominant theme in our communication this quarter.
Now that the Federal Reserve has signaled that it expects to cut rates in the coming months, we can all breathe a guarded sigh of relief. That said, deposit interest rates are likely to remain elevated in 2024 – the marginal cost of funds for retail deposits is around 10% entering the year and, in our view, banking institutions have little choice but to pay if they want to grow or even hold steady. We dig deeper into the numbers in our lead article, “Deposits in ’24: It’s Gonna Cost You,” and also offer non-rate strategies that FIs should be putting in place now so they can deepen customer relationships in the longer term.
We also present practical strategies for acquiring deposits from commercial clients and small-business customers, which cost roughly half of retail channel deposits. For FIs with the need and wherewithal to raise a material level of deposits, we examine the pros and cons of buying them through acquisition or building them organically. And we look at branch networks, which remain a critical source of customers and deposits even as transactions go ever more digital. Our analysis shows that a successful branch opening in 2024 largely depends on targeting specific segments of the market, like high net worth or commercial customers – the old “broad brush” approach doesn’t work like it used to.
On the asset side of the balance sheet, 2024 will likely present stiff headwinds. In the mortgage market, we expect issues of affordability, inventory and lack of demand to persist, with a meaningful recovery not arriving until 2025. In the meantime, Curinos’ Home Equity Forecast, the industry’s first, suggests that demand for HE products is poised for an upturn in the second half of 2024 as interest rates decline and consumer optimism rises.
Finally, we look at the white-hot topic of generative AI (GAI) and how it will accelerate in banking. Chatbots are already a staple at most larger institutions and many smaller ones as well, and from here, we see the technology pushing more forcefully into customer acquisition, fraud prevention and enhancing customer lifetime value.
To be sure, the new year will present more than its share of challenges, but those with the creativity, courage and resolve to meet them will be that much more prepared to reap the rewards to come. As ever, Curinos is here to help you “navigate today and anticipate tomorrow” so that the successes you achieve in 2024 will set the stage for a stellar 2025 and beyond.