Financial institutions continually have to reinvent themselves, it seems. That’s been especially true in the last eight post-recession years.
Capital losses of 2008 and 2009, combined with increased regulations, an extended slow recovery, and a historically low interest-rate environment have created some exceptional challenges for senior executives in our industry.
Consider this quote from a 2011 article in The New York Times by a banking security analyst: “This decade for U.S. banks will show the worst revenue growth since the decade of the Great Depression.”
But as the economy began to experience an upturn, revenue began to creep up again and banks began to see growth, especially in loans. By 2014, the economy was showing signs of life.
Fast forward to 2018: Loan growth is again slowing. Business lending, an important source of revenue, plummeted to its lowest level since the first quarter of 2011, dragging down overall lending to its lowest level since the end of 2013, according to The Wall Street Journal.
Oddly, the decline in loans has coincided with many signals pointing to a more buoyant economy, including an overall increase in loan balances.
A healthy loan environment is important for maintaining healthy financial institutions (see the old adage that “loans create deposits”). Increased lending requires increased deposits to pay for the loans and maintain an optimal loan-to-deposit ratio (LDR).
Now that we’re facing an up-rate environment for the first time in a generation, profitability becomes more difficult, putting even more pressure on core deposits to provide a stable source of funds, for lending activities as well as long-term profit potential.
The importance of core deposits can’t be emphasized enough. In addition to a stable source of funds, they provide predictable costs and a reliable measurement of customer loyalty. And rates paid on core deposits adjust more slowly, thus muting the impact on your bank’s net interest margin (NIM) as our historically low interest rate environment recedes.
All this to say that attracting, retaining and growing core deposits is more important than ever—and that importance won’t change any time soon.
Many financial institutions have relied on organic growth to meet their deposit needs. Whether through their branch networks or their brand equity in the market, they’ve counted on new customers walking through their doors and opening new accounts.
Maybe they’ve tried one-off campaigns such as “refer a friend” or branch radius mailings, but these are typically few and far between.
What happens when organic growth stops? How will you fund the loans it sells? How will it ensure a stable source of funds?
Acquisition marketing to the rescue
Organic growth only goes so far. To consistently grow core deposits, financial institutions need a proactive approach to capturing new customers and deposit accounts.
Competition is fierce. Customer experience is vital, and becoming more vital every day. The successful bank of the future is the one who’s out there today, actively marketing to prospects in a targeted, strategic way.
If you’re ready to boost household and deposit acquisition, here are four questions to ask before diving in:
1. What does success mean to you?
This seems like a no-brainer, but it’s important to define success in order to attain it. Growth can come in many shapes and sizes, not all of them will work for you. Defining success before you begin allows you to establish key performance indicators (KPIs) and milestones to measure your progress against.
Are you looking to grow a certain segment? Are you looking to grow your wallet share with existing customers? Do you want to grow new households?
For example, maybe you want to attract more millennials. If so, you need to know how many you’re currently serving and how they feel about you. What do you have to offer them? How are you going to keep their business over the long-term?
To answer these questions, you have to understand the wants and needs of your prospects, in this case millennials in your target area.
2. Who are your best customers?
Not all customers are created equal. This is especially true in financial services. A “quality over quantity” approach built around serving a smaller group of customers who are more likely to engage with you over the long-term and become evangelists for your brand is preferable to a “more is better” approach that doesn't take into account the costs of churn and attrition.
In order to know the best prospects to target, you need to understand who your best customers are. Where do they live? What products do they buy from you? Through which channels do they engage with you? Are they ATM users? Do they prefer the drive-thru teller? Do they use your mobile app?
To attract your best customers of tomorrow, gain a better understanding of your best customers today.
3. What’s your approach to attracting and engaging prospects?
Once you understand who your best prospects are, how are you going to attract them? What messaging will resonate with them, cutting through the endless noise they’re bombarded with every day? What channels do they frequent?
Once you’ve got their attention, how are you going to engage them, to nurture them from a prospect or lead to a happy customer?
While there may seem like fewer answers than questions, and marketing can be a never-ending task, it’s important to stay focused on your core capabilities (what you can offer that no one else can) and how they overlap with what your best prospects want. A targeted approach with personalized messaging will help position you to capture customers when they’re ready to switch.
Above all, remember that cadence is key. Acquisition marketing is not a one-and-done campaign that you turn on and then off when you hit your numbers. It’s a sustained, long-term approach to growing your business in a targeted, strategic and sustainable manner.
4. Does your customer experience measure up?
Consumers have radically changed how and why they make purchasing decisions. Gone are the days of simple price comparisons or what brands have the best features and benefits. Today’s consumers evaluate each and every interaction they have with a brand, its products and its people, and they compare it across industries and businesses.
Consumers expect to receive what they want, when they want, via the channel in which they want. Whether online or over the phone or in a brick-and-mortar store or via a mobile app, customers demand excellence each and every time.
Remember this as you proactively seek new customers. They are comparing you not just against other financial institutions in your market, but against Amazon and Netflix and Spotify and Uber. Meet their expectations and you will continue to win the day. Fail to meet them and you will soon be left behind.