Like everything else, the financial industry has experienced massive change in the first two quarters of 2020. According to the Wall Street Journal, businesses and risk-averse investors flooded U.S. banks with a record $1 trillion in deposits when markets went haywire.1 Skittish customers have stockpiled cash into federally insured accounts as they rush to flee market volatility. Despite a drastic fall in interest rates, they’ve been doing it at nearly double the previous quarterly record for the U.S. banking industry, according to Federal Deposit Insurance Corporation data.2
Even though a large percentage of the current infusion represents business line of credit drawdowns that were then redeposited into lending banks for cash on hand, consumer savings were already on the rise. And not only for the largest national and super-regionals. Goldman Sachs’ online bank, Marcus, reportedly logged a $12 billion boost ending the first quarter with $72 billion.3
Deposits have long formed the foundation of most retail financial institutions’ core earning assets as key sources of coveted “primary bank” relationship status. They are essential to profitable financial business models both as a low-cost funding source to fuel credit demand and as incremental reserves to cover potential at-risk loans.
Combined with the sudden drop in interest rates realized in just 3 months, financial institutions are under increasing pressure to scrutinize their strategies for growing deposits for the remainder of 2020.
Even if the economy recovers sooner rather than later, there could be a flight of balances from retail banks. Challengers are specifically targeting quality, sticky, retail savings customers who now are earning the lowest yields. Competition is fierce for cash with online banks including Ally, CIT and Marcus in hot pursuit to attract and keep high-value deposit consumers by tempting them to switch and earn returns up to 10 times the national average.
When managed strategically, deposit marketing, from acquisition to portfolio management, delivers strong financial impact to interest margin, revenue, and effective use of spend. In addition to the macroeconomic conditions that are driving today’s deposit market growth, marketing investments in predictive third-party data and new digital technologies have increasingly become factors in attracting and retaining customers and balances. As competition has intensified, financial institutions must seek new ways to drive incremental household growth and nurture loyal relationships that provide stability.
To remain competitive, banks must fully adapt to this shifting financial landscape with advanced acquisition marketing capabilities and the ability to build more profitable and longer-term relationships with clients. Only a culture of continuous improvement and innovation will enable financial institutions to fully understand and grow customer value across digital and physical distribution in ways that deliver stability with highly desirable customer segments.
To learn more, download our deposits fact sheet.
1Coronavirus Made America’s Biggest Banks Even Bigger, Wall Street Journal, April 24, 2020
2How the Federal Reserve impacts savings accounts, Bankrate, Apr. 29, 2020
3Goldman’s Marcus At $72B In Deposits, PYMNTS.com, April 15, 2020