Transaction Accounts –The Key to Deposit Funding

Posted by Tim Keith on Jun 7, 2023 11:05:00 AM


For several years, federal stimulus dollars swelled the checking account balances of many consumers, who found few, if any, safe alternatives to earn higher yields. That era has now receded into the rearview mirror.

The much-hyped liquidity crisis and fear of deposit runs proved to be a risk for only a handful of large regional banks. Still, all banks and credit unions face twin challenges of the gradual depletion of stimulus-era excess deposits paired with a rate environment that finds more customers actively shopping balances for higher returns. In previous blogs, we’ve addressed the importance of deposit diversity and the rate card conundrum; we now wrap up our series with a look at the enduring value of transaction accounts.  

A specific challenge as savings product penetration and average balances normalize is to maintain a good mix of checking-related deposits to total deposits. This will require a significant focus on account growth.  The math is simple – it takes 10 checking accounts with $3,500 each to equal the funding impact of a single $35,000 account. Using data to identify an overlap of high-balance checking cross-sell opportunities with prioritized deposit retention targets allows for a prioritized allocation of sales and marketing expenses to achieve maximum impact.

Consumer and Business Engagement

Inevitably, any quest for stable and low-cost deposit funding gravitates toward higher-balance opportunities offered by savings accounts and CDs. Bear in mind that the existing DDA base comprises the largest share of customers for nearly all FIs. They provide a natural opportunity to drive deeper engagement, leading to higher balances, whether in a newly created savings account or the DDA itself. Financial wellness messaging and outreach to transaction-oriented digital banking users offer valuable starting points for such engagement.

Size matters on the commercial side, however. Although most FIs have far fewer business accounts, they tend to carry significantly higher balances. The business savings category was particularly neglected during the recent zero-rate stretch since SMB clients had no meaningful incentive to segment their money. As a result, more than two-thirds of SMBs at most banks are single-product checking customers, based on data compiled by SRM. Proactive outreach to key clients is advisable, as competing banks are almost certainly planning overtures for these customers. There’s also a virtuous cycle among business customers, as commercial loans tend to soak up liquidity rather quickly.

FI sales bandwidth, particularly on the consumer side, limits the extent of personal client contact. Strong marketing programs and messaging are essential to bridge this gap. Even a 10% conversion rate opening new savings accounts can drive substantial upside.  

Searching for the Side Hustles

The trend of Americans diversifying their income streams through the gig economy, more traditional independent contract labor, and side hustles continues unabated. Many individuals already have consumer checking accounts. Effective staff training, data analysis, and marketing can help identify these customers and create win-win opportunities for expanded relationships.

Gig economy workers effectively conduct their financial lives as small businesses, even if they don’t view themselves through that lens. Such labor generates less-predictable cash flows, periods of excess balances, and a likely need to set aside funds for estimated tax payments and other work-related expenses – all good arguments for establishing at least one savings account and quite possibly engaging with one’s bank or credit union for more support and guidance.

The Bottom Line

After an extended period of being an afterthought, deposit management surged to the top of FI strategic priorities this year. Hopefully, our blog series (earlier installments can be found here and here) have helped warm up muscles that haven’t been exercised in some time.

Data analytics and carefully targeted market messaging will be essential to execution, and we believe opportunities within an FI’s existing customer base likely exceed those available from pursuing new prospects.

We’d welcome an opportunity to continue this conversation with your team and share how SRM’s Account Boost offering is the ideal accelerator program.

Topics: Vendor Contract Negotiation, Bank Vendor Management, Credit Union Vendor Management, Deposits, liquidity, Gig Economy

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