The Deposit Dilemma: Investing For The Long Term

The pandemic-induced deposit surge has all but evaporated (Figure 1). On top of that, deposit betas are rising as customers wake up to the prospect of higher yields that are putting pressure on short-term profitability. Longer-term profitability pressures are emerging as well, and with customer preferences and behaviors continuing to shift, tried-and-true levers of differentiation don’t work like they used to.  

An effective way to establish the deposit franchise of the future will be to apply marketing as an investment in sustainable customer growth, rather than viewing it a cost center that can be cut without much consequence in times of profit stress. 

Figure 1: Surge Deposits | Jun '19-Jul '23

Source: Curinos Analysis; S&P Global; FRED H8 Report | Surge Deposits measured as deposit growth from 2020-2023 in excess of median growth rate from 2016-2019 | H8 deposits grossed to equal total commercial bank deposits from call reporting

One opportune method is through targeted use-of-cash offers, the costs of which haven’t increased as much as rate. These can be even more successful if they’re driven by marketing and digital tools that customers today have come to expect.  

In addition, a segment focus can help grow customer deposits over time, but only when executed thoughtfully. Small businesses, for example, offer more attractive deposits – 50% lower cost than consumer deposits – but banks must carefully weigh how to win them without focusing too much on rate, which would erode the cost advantage.  

Deposits are a key lever for improving future profitability. Working that lever effectively requires analytically driven decision-making, with data based on near-real-time customer behavior and competitive activity.    

Introducing Deposit Optimizer Essentials.

Manage your deposits using best-in-class analytics without the expense of a large team. Deposit Optimizer Essentials provides data and executive insights that cut through the noise to offer guidance to achieve your funding goals. 

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