1. Enhance customer analytics and digital targeting.
Because not all customers respond in the same way, segment-of-one targeting and pricing have become significantly more important. Branches and digital channels will need independent approaches to targeting and pricing. Operating model flexibility and proper governance are critical to meet deposit growth needs without drifting into undesired margin situations. As customer-level analytics help guide these decisions, the operational flexibility to deliver is equally important.
2. Focus on acquisition costs as much as, if not more than, deposit costs.
We’ve found that marketing and customer acquisition costs are tethered to a physical world whereas customer behavior is digital, meaning that efficiency gains can be realized with more effective customer conversion tactics.
For instance, the difference between top tier deposit rates and competitive rates is about 50bps to 75bps. It’s not that much given that rates remain relatively low, but some institutions still have high customer acquisition costs despite the efficiencies presented from a digital channel. We’ve seen better targeting, alternative marketing, and a wider portfolio of available products leading to materially lower customer acquisition costs — as much as a 600bps reduction in some cases.
While market rates and competition will certainly impact deposit rates, this expense might be relatively small in the full scope of customer and deposit acquisition costs.
3. Don’t forget about what you have: generate growth from existing clients.
Despite the flexibility from digital channels, it’s still a tedious exercise for customers to leave the bank they’ve had a relationship with for years. As such, existing customers — more affluent customers in particular — can be the most profitable form of deposit growth.
In our experience, we’ve seen non-rate features such as the product portfolio have a greater impact on customer satisfaction than deposit pricing. In fact, customer segments that prioritize non-rate features have increased by 21% since 2015 while rate-focused segments have declined by 34%, according to PwC’s latest deposit pricing survey. To increase value from the installed base, banks can look to customer-level analytics. These tools can help identify individual-level preferences such as price, experience, and product-type.
In addition to new products, banks that use customer-level data to better deliver specific offers will be more likely to accurately meet existing customer needs. For example, when do customers want to speak with branch personnel and how can this be delivered conveniently? Voice and video-enabled visits can be effective methods to meet customer needs and extend a new product that may lead to sustainable deposit growth over time.