October 30, 2018
WSJ: With deposits heading out the door – what can banks do to stop the leakage?
While total overall deposits continue to rise in the U.S. year over year, there is $30 billion less sitting in non-interest earning bank accounts now compared to a year ago, as consumers are taking notice of their options to do more with their own money. As the Wall Street Journal reported last week, this represented a 5% drop in these deposits across the four largest U.S. banks – JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup, with the money primarily coming out of business and consumer checking accounts.
With interest rates on the rise, bank customers are moving their money to chase higher yields. This wasn’t a factor when low interest rates meant little benefit could be derived from savings accounts, so customers just let their money be. But with the promise of finally being able to earn a few percentage points, Main Street is going where the interest is now.
Allen Tischler, a senior vice president at Moody’s Investors Service, described these deposits “the crown jewel of the bank funding base. You start losing that and you end up not being able to benefit from future rate increases.”
And that is the new reality that banks face.
The real question is what banks are going to do about it. Is that money going stay inside the bank, just in a different account, or are they going to let it walk out the door?
Money following money is as inevitable as water flowing downstream, but a corresponding loss in share of wallet is entirely preventable. The challenge now for banks is to stem that flow of deposit leakage by keeping these funds in-house.
But keeping that money inside one’s own network might be more difficult for banks now than ever before. In addition to the traditional banks and credit unions, consumers today have access to a variety of new financial services that are vying for their business, including digital-only savings apps land investment platforms such as Acorns, Betterment, and Robinhood, and digital-only banks that use high-interest savings as a way to attract new customers and siphon their funds from the incumbents, such as Ally Bank, Marcus by Goldman Sachs, and CIT Bank.
In fact, according to a survey by Bank Clarity, 57.5% of consumers have already identified the next bank that they would choose if they had to close their current account. “This means that more than half of those surveyed showed a brand preference beyond their current primary institution,” the report concluded. They might not be going anywhere now, but they know where they will end up when they do.
So what can banks do to prevent the flight of deposits?
It is clear that, when a customer might be deciding to move their money, the best place to be is right in the middle of the conversation, or better, ahead of that discussion.
Recognizing the deposits at flight risk is step number one, and banks can find clues pointing to these deposits in the treasure trove of customer transaction data they hold.
By analyzing individual accounts and cash flows, banks should be able to predict future actions and outcomes, allowing them to identify those customers that could (and should) be looking for better returns on their deposits.
Banks that are able to recognize these opportunities can get ahead of the game – know when a customer has extra money to move, recommend where it should go to benefit them the most, and even move it for them.
Using Self-Driving Finance capabilities, banks can provide insights, recommend actions, and automate money movements to help customers make the most out of their deposits – and by doing so earn the opportunity to keep these deposits in their coffers:
- Highlight savings opportunities for customers, e.g. when receiving a large deposit
- Recommend specific “available to save” amounts based on predictive cash flow analysis
- Automate money movement to savings and investment accounts based on real-time individual customer cash flows
This Self-Driving Finance model proactively guides customers to achieve their goals – in this case to save more money and earn interest on it – while maintaining the bank’s share of wallet by keeping the funds in-house. This is a win-win for both sides that is proving to be a popular benefit to consumers that have access to it today.
According to Rami Thabet of RBC, the bank has already helped their own customers move millions of dollars from checking accounts into interest bearing savings accounts since the launch of NOMI Find & Save. “It has been a great client pleaser. It has become its own brand name in the Canadian market,” said Thabet at a recent banking conference.
The good news here is that consumers and small business owners have already taken action to start earning interest on $30 billion worth of their money. Now the question is whether banks will make it a success story for their business as well.