Empowering Financial Futures: New Ways Banks Can Attract & Retain Depositors
Rising interest rates and inflation have created a perfect storm for intensified deposit competition. Financial institutions of every size are looking for ways to attract and retain depositors while depositors search for the best return on their dollars. Research from Cornerstone Advisors shows that the interest rate environment and cost of funds are community bank and credit union executives' greatest concerns for 2023.
Until recently, interest rates hovered at historic lows, which meant many financial institutions’ current marketing teams have never had to prioritize deposit growth strategies. However, all of this has changed. Even for marketers that have managed deposit growth campaigns in the past, tactics that worked well decades ago may not be the best path forward today.
For instance, promoting higher rates on CDs is a common tactic, but this approach often primarily attracts rate shoppers, who will invest their dollars and leave once the deposit has matured. Aggressively raising rates across an institution’s entire deposit base also does little to improve customer retention or attract new depositors long-term. Meanwhile, these tactics are typically costly and customer acquisition costs are already high enough. According to some experts, for a large bank, it could cost between $1,500 and $2,000 to acquire a new retail banking customer.
Instead, financial institutions should consider lower-cost methods for increasing deposits that also make a meaningful difference for their customers’ financial futures. Finding creative ways to engage new and existing customers, and ultimately differentiate their brand, will be key.
Financial wellness and savings programs are an excellent way to accomplish this.
Cultivate a More Informed Customer Base
It’s no secret that many consumers feel anxious or uncertain about their personal finances. A recent survey by Capital One revealed that more than three in four Americans feel anxious about their financial situation. The survey also reports that more than half of consumers feel that finances control their lives and they have difficulty controlling their money-related worries.
Clearly, today’s consumers want help and community financial institutions are perfectly positioned to provide the support consumers need. By offering the right tools, resources and personalized support, community banks can do this in a way that drives sustained deposit growth.
Not only is financial wellness something that customers want, there’s also a significant benefit for financial institutions. According to a recent Financial Health Network study, customers who believe their financial institution cares about their financial health are three times more likely to be “very satisfied,” three times more likely to recommend their primary financial institution, and five times more likely to be interested in purchasing additional products and services from their primary financial institution. Stats like these prove that financial wellness programs can be an effective way to grow stickier, low-cost deposits.
Additionally, financial wellness initiatives can help customers understand how to save, earn, borrow, invest and grow their money over time. The institutions that do this well are also offering the tools to empower customers to practice these behaviors on a consistent basis. For financial institutions, this translates to more customers with higher credit scores, more discretionary income to spend on products and services, and the ability to meet their financial commitments for things like loans and mortgages. At its core, financial wellness is a meaningful driver of long-term customer relationships, deposits and revenue.
While most community banks put effort into financial wellness and education, larger institutions are marketing that they’re the go-to resource for financial wellness information and support. If community banks have a fighting chance against larger marketing budgets, it is going to require those institutions to think critically and strategically to differentiate their brands.
Market Intentionally
To differentiate in a competitive economic environment, consider your institution’s current market demographic. Additionally, identify which customers your bank wants to attract, and dig deep into their financial lives to best serve their unique needs.
For instance, is your bank located in an area popular with retirees or in a large urban market with an established gig economy? Or, are you located near a university and serving a large population of college students? Financial wellness initiatives for these groups should look very different because each of these groups’ financial goals will vary.
Financial institutions can do this with existing customers too, which means it’s time to get personal. A study from the Boston Consulting Group found that hyper-personalization can lead to annual revenue uplifts of 10 percent and can lower rates of customer attrition, proving that personalization at scale can build loyalty and profits that last.
A truly effective financial wellness program will enable a bank to know and understand their customers beyond their age and account balance. When banks can analyze a customer’s transactions, their savings and other financial goals, as well as which personal financial education resources they are viewing, institutions gain a more complete picture of the customer. This allows the bank to meet customers where they are and help them pursue long-term financial health. Ultimately, financial institutions must give customers the products, services, and personalized guidance that they need to reach their goals, whether it’s buying their first home, purchasing a larger car for their growing family, or simply having enough money saved to fix an appliance that needs repairs. These are tactics that move the needle on financial wellness for customers while driving deposits for the institution.
Establishing relationships on the foundation of genuine customer service and products that offer meaningful financial support benefit both the bank and the customer. There is no reason why community financial institutions can’t play a larger role in helping their customers achieve healthy financial lives, no matter what their goals are. Financial wellness initiatives should include proactive, contextual advice and tools that are useful in everyday life. The goal is to provide consistent and relevant guidance that is meaningful to customers – delivering advice that grows with them as they move through different life stages. With these considerations in mind, financial institutions of all sizes can create a brighter, more financially-sound future for customers and attract low-cost, long-term deposits.