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As CDs Come To Term, What Are You Doing About Flight Risks?

Marketing Matters

With a material volume of CDs maturing at the turn of the year bank marketers must be ready to react to customer-level flight risks. Individual offers and treatments must be considered a core element of retention strategies.

According to Curinos research as much as 7% of the industry’s retail deposits are in CDs that are due to mature in the fourth quarter of this year and first quarter of next, putting banks and their marketers on high alert. Further complicating matters is the fact that the vast majority of these are first in cycle maturities with unknown renewal behavior. Nobody knows for sure when interest rates will stabilize – although we may begin to see rates moderate late in the year. In that context, being long in CDs will further compress margins in an already tight market.

Marketing will be key to retaining deposits, but broad-based efforts will be counterproductive: Banks that rely on repricing their entire book of existing deposits and broad-based or mass retention campaigns encounter low retention rates at significant production costs. Instead, sending tailored renewal offers based on the propensity to auto-renew and price sensitivity is likely the most cost-effective, risk-intelligent means of retaining CD deposits.

As we move into a more actively changing rate environment and CDs come to term holders are likely to be attracted by headline rates and regular changes in their financial profile.

Price elasticity and propensity to renew are critical factors in identifying risks, and some topline direction can be established. Overall, more depositors are getting used to the idea of shopping around: Elasticity and opportunity can be realized in basic profile groupings, for instance research has found that 75% of millennials find it very important to shop around for the best interest rates compared to 46% of baby boomers, and while less than 10% of Gen X and Millennial households hold CDs, the latter group has been identified as the target for increased deposit, loan and transaction business potential. However, these pictures are changing and fragmenting: Long-term low rates made shopping around an activity only for those most rate sensitive, but the curve is expected to change and increased levels of rate sensitivity is expected across the market.

For Glenn Pingul, Vice President of AI Marketing & Personalization at Amplero bank marketers need to look at risk management like other departments across the organization, by being able to identify pockets of risk at any given time and executing on the best possible reaction. That’s far from a batch and blast approach.

“To manage deposit retention – particularly in a volatile environment – you need to engage with customers, individually, based on their profile or propensity to stay or leave as term comes up and personalize communications based on likelihood of leaving,” he says. “You can target rates and be very surgical about who the customers are that are risk of flight versus who isn’t and then take appropriate action.”

The traditional response to interest-bearing product expiration concerns is posting a rate on the door of the branch, but it’s a strategy that banks have come to realize is entirely uneconomical: by the time the institution has overhauled the entire rate offering and repriced the existing customer base it has left value on the table. Indeed Curinos research suggests a marginal increase in marketing spend and reduction in traditionally high interest expense can yield profitability. And cost is a major factor here, with just 1.7% of consumer marketing spend allocated to CDs in 2022, according to Marketing Analyzer data.

Target with precision

With boundaries applied Amplero Personalization Optimizer users can establish a predefined outcome to optimize against, be that CD renewal or upsell – with the ultimate goal of increased CLV. Producing a picture of each customer based on characteristics including profile data, product portfolio, behavioral data, propensity modelling and liquid deposit scores Amplero will pull together the best combination of characteristics then test and iteratively learn the right treatments from the marketer’s messaging library.

The challenge for marketers is to identify the expected behaviors of customers holding CDs closing in on expiration and engage with them with them appropriately to produce the best possible outcome – that is renewal. By identifying rate-seeking and flight risk CD customers banks can minimize the need to reprice rates across the board, instead selling strategically.

High value deposits have become all the more difficult to come by, and those sitting in interest-bearing accounts are a particularly unique commodity. Marketing resources must be deployed effectively and with precision.

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