Effectively managing deposit pricing means being surgical. Otherwise, wide swaths of the back book can reprice, often saddling an institution with a huge expense that’s entirely avoidable. And being surgical means segmenting the depositor based by their behaviors.
Curinos has identified these four distinct segments, each of which displays attitudes and behaviors toward saving that are both materially different from one another and actionable:
- Chronic Shoppers: These people are rate-driven and move balances when a promotional rate expires. They’re fast to come and fast to go.
- Situational Shoppers: These savers shop when they come into enough money to prompt them to seek rate, from sources such as bonuses, tax refunds and windfalls.
- Engaged Savers: These depositors maintain stable or growing balances tied to a deep and engaged relationship with the institution.
- Unengaged Savers: Even though their relationship with the institution tends to be shallow, these savers maintain stable balances.
While two customers could be in the same pricing cell on a standard rate sheet, customer-level segmentation allows for different treatments. Previously, the financial institution had no choice but to offer all customers the same rate, thereby overpricing Customer 1 to retain Customer 2. With segmentation at the customer level, the institution can offer a rate premium to the Chronic Shopper while offering a below-market rate to the Engaged Saver (See Figure 1.)
CUSTOMER 1: ENGAGED SAVERS
CUSTOMER 2: CHRONIC SHOPPERS
History of Renewal
History of Renewal
Deep, Engaged Customer Relationship
Shallow or Nonexistent Customer Relationship
Likely to Renew Even at Sub-Maximum Market Rate
Moves Balances if Higher Rate is Observed
Growing and Stable Balances
Fast to Come, Fast to Go
Customers with stable balances who are tied to a strong relationship with the bank are likely to stay.
Offering a rate premium to rate-driven customers helps to retain balances from this customer segment.
Source(s): Curinos Analysis
This kind of differentiated pricing is possible only through knowing the customer. And that takes analytically derived behavioral-based segmentation that’s based on near-real-time data.
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