An odd thing has happened as a growing number of digital banks and price-led strategies have tried to attract more depositors—consumers now say product and location matter more.
The results of PwC’s Deposit Experience Radar, a recent survey of 4,000 consumers, show that while pricing continues to play a role consumers see non-rate factors such as product type, convenience, and brand as more important.1
As longstanding retail banks and new entrants take advantage of technology for virtual onboarding and out-of-footprint deposit collection, the bank-consumer relationship is evolving. Whether through high promotional rates, attractive perks, or expansion of existing relationships (e.g., credit cards), banks are testing various ways to establish and build relationships with or without a physical branch presence.
So if it’s true that, as our latest survey indicates, rates are not the defining factor, it follows that a different approach is called for. In fact, our experience suggests that needs-based segmentation is vital to more accurately forecast deposit collection and duration. The reality is that ‘digital’ has placed more power in the hands of consumers. The ability to rate shop, compare product features, and open or switch accounts are variables that increasingly matter not only for deposit growth but also deposit quality.
1. All survey data cited: PwC Customer Analytics, Deposits Experience Radar
These two customers appear very similar. They live in the same major metropolitan market, opened an account for the same reason, and are about the same age. But could customer 1 be an experience seeker testing the waters for additional products? Could customer 2? Are they both ‘hot money’ acquisitions chasing a higher rate?
We’ve found that offers with high promotional rates don’t resonate with 72% of experience seekers, but they are relevant and could drive account opening for the remaining 28%. Banks that use data to better define specific customer segments and match them with specific offers will likely have a better handle on the additional variables beyond just rate to improve deposit quality.
The approach for deposit expansion can lead to either a multi-faceted long-term relationship or a single-product short-term relationship depending on execution. Critical to improving deposit quality is addressing detailed customer needs by then delivering the products and services those customers want. Even institutions that lead with promotional pricing become less reliant on price over time, particularly as the promotions end. If customer expectations are met effectively, growth in wallet share can continue.
The balance between price-led and other deposit strategies is that much more important given recent bank financial results that point to a diminishing benefit from net interest income. Our survey data suggests substantial change in how consumers value price versus other factors. Since 2015, consumer segments that prioritize non-rate features grew 21% while those focused on rates declined.
For those consumers who did switch their primary bank over the last three years, about 40% cited more convenient branch and ATM locations—twice the number that switched for a better deposit rate. Overall, when choosing to open a new account, consumers said they’re more influenced by the product they’re looking for than by any other factor they’re considering.
Rates can be effective tools in driving new-to-institution deposits, but with markedly lower durations on rate-attracted deposits, additional levers (e.g., product, convenience) are needed to retain the customer over time. Ask yourself, for regionals or smaller institutions that have digital-based out-of-footprint deposits, do they have partnerships (local banks, retailers) that can provide cash-out capabilities to mimic an ATM network? Do institutions have a product strategy to become less reliant on price over time?
When using segment-driven analysis to initiate and foster a relationship, a significant improvement in the reception of particular products or rates can be achieved.
Much of the strategy should be tied to how each institution can use what it knows about a particular consumer segment to make those customers more receptive to a particular product, perk, or rate. Because digital channels provide the ability for institutions to be more flexible with pricing while providing greater transparency for consumers, the means for engagement and efficiencies with acquisition costs are changing.
As such, the focus on matching the right segments with the right offers can create stickiness and deposit duration that are ultimately higher quality, leading to lower deposit betas over time. Pricing will always play a factor in deposit growth, but redirecting this investment to competing areas could produce a more robust customer experience and deeper relationship while facilitating similar growth.
Financial Services Advisory Leader, PwC US
Financial Services Advisory Digital Leader, PwC US