Some financial institutions struggle to find deposits. Others know where to look.
At one point in time, the smallest town in the U.S. was Buford, Wyoming. Population: 1. The only resident also ran the only gas station and post office in the town. It’d be a real kicker if he also ran the only credit union, right? Suffice to say, America is home to many small communities along with locally owned financial institutions who serve the needs of those communities.
One of the hidden difficulties for institutions operating in these small towns is growth. When you know everyone in a 50-mile radius by name, it can feel as though you’ve exhausted all the opportunities at your fingertips.
It’s time the sharpen the edge of your retail strategy.
The realities of deposit markets are complex. You may think that you’ve captured all the deposits worth having, or at least your fair share of what’s available to you. Unfortunately, it’s very difficult for credit unions to truly understand the amount of deposit market share they own given the limited data available from the NCUA. There, all deposits are assigned to the headquarters market, making it impossible for anyone to understand branch-specific market share, similar to what’s available for banks through FDIC data. Additionally, privately insured institutions are completely missing from the data set.
What’s also completely missing from any analysis is deposits available to you via online channels, as well as deposits in your market that have been lost online. If someone in your market has opened an account online with a financial institution that doesn’t have a physical branch in your market, no available data source will provide that information to you. Marcus, the new online lending and savings option from Goldman Sachs, gathered $35B in deposits in its first year, but never appeared on a single deposit market share report.
In the end, these types of analyses provide marginally useful information, at best, but should not be a major point of consideration for strategic decisions. If you need more deposits and you’d like to avoid purchasing expensive ones, there is hope. Conventional strategies aren’t going to cut it. You’ll need an innovative approach if you’re serious about getting out of your deposit rut.
Turn interest rate risk into your ally.
One of the first steps you can take is to adopt a progressive approach to offering high-rate, differentiated products with no monthly maintenance fees, such as reward checking. Although offering 3-4% on a checking account may sound like an insane amount of interest rate risk, the reality is that reward checking is one of the most flexible and low-cost core deposit products in existence.
Once you understand the mechanics of how reward checking works, you can use it against your competition, people who most likely maintain the erroneous belief that reward checking is akin to balance sheet suicide.
Offering rewards such as high-interest rates or cash back on debit purchases are a great way to draw in members who would have overlooked your institution otherwise. Alternatively, these types of accounts can help you achieve PFI (primary financial institution) status with current account holders who have low or negligible activity. Rewards give consumers a reason to shift their deposits and daily activity to your credit union. This lays the foundation for cross-selling into other products or services that you offer.
Enhance your advertising toolkit to build better member relationships.
Once you’ve established a retail product suite that is appealing to consumers, you can begin retooling your marketing strategy. In fact, there’s a reason we don’t recommend this as a first step: you can spend every spare penny on advertising, but if the product isn’t attractive, you’re effectively lighting your marketing dollars on fire.
With great products in hand, you should turn your attention to precise targeting. Look for an advertising partner that can help you bring in exactly the type of members you want and need. Ideally, you’ll be able to find someone who can help you implement two programs: 1) new member acquisition, and 2) existing member cross-sell. Both initiatives are important and require very different automation sequences and campaign assets.
If you’re an institution that is struggling with a constrained deposit market, we’d advise against trying to spin up highly advanced marketing programs and platforms on your own. There are partners out there who can help you manage costs by sharing access to these large platforms and leveraging proven assets that will allow you to achieve the kind of growth you crave. Going this path alone can easily end in wasted time and investment with lackluster results to show for it.
You can grow deposit accounts even in a tough market.
So to recap what I’m saying here:
- Deposits in small markets can often go unnoticed due to a range of factors. You need to search some alternate data sources before you make a final judgment on the potential for growth, but it’s there in all likelihood.
- You won’t win over new members or re-invigorate existing ones with the same old vanilla deposit products you’ve used for decades. Reward-based accounts are products that consumers actively seek (for example, the new Apple credit card offers cash back rewards — that’s a pretty solid indicator of what people want).
- Finally, once you have attractive products, you need to adopt a highly targeted advertising program that will bring in local consumers who will make you their PFI.
Three simple steps, right? The truth is that these steps are simple, but they’re not easy. And there’s no reason for you to attempt a strategic shift of this caliber on your own. Check with your credit union association and ask for a list of recommended vendors. Finding the right partner can take time, and if you’re already hungry for deposits, you need to start the process sooner rather than later.