Deposit Pricing, Acquisition, and Account Management in the Face of Rising Rates
Virtually all economists are in agreement that interest rates are on the rise. In response, bank deposit pricing, acquisition, and account management strategies need to evolve and become more flexible. But there is still the question of when this will come to fruition. Some financial experts predict that rates will rise later this year, while others insist that the Federal Reserve won’t raise rates until 2016.
That may seem far away for retail bank marketers, especially since consumer prices are at a six-year low, inflation is seemingly under control and oil and gas prices are relatively stagnant. But according to Alvin Green, vice president for Finance and Banking Services at Equifax’s IXI Services division, being proactive about building bank deposit pricing strategies and customer service plans before rates rise is no luxury — it’s a necessity.
“Bank customers may react to rising rates differently,” explains Green. “Bank deposit customers will welcome the added interest on accounts, but mortgage, credit card and auto loan customers may not see it that way. Consequently, you need to hone in on specific customer groups, with specific strategies, and always keep the end goal — getting new revenue in the door and keeping revenue at the bank — [in mind] all the time.”
Green offers Equifax Retail Banking clients some key ways to help keep their net interest margin steadily growing in the face of increased interest.
The moment of truth. When a customer calls and says they are withdrawing all of their deposits and investments for a better rate, what do you do? Do you offer a more competitive rate or let them go?
Green advises you might want to know more about the customer: “How likely is it that they could grow their balances now and over time? Might they be interested in other products down the road?”
“One of the keys is direct measurement, something we leverage all the time at IXI Services,” he explains. “Use segmentation tools based on direct-measured assets to find out more about your client and what’s likely to be in their portfolio at your bank and other institutions. Then use the data to develop strategies that both meets the client’s needs and maximizes opportunities for your bank.”
Understand your customer in advance. According to Green, the best preparation work bank marketers can do in advance of an interest rate change is to understand your customer base. “What is in their portfolio?” he asks. “How will they be affected by a change in rates? If a customer has a high money market balance with your bank, but little in the way of other deposits and investments outside your institution, then you can probably move slowly to increase their rate since they are more likely to be loyal to you and may not be familiar with other competitors.”
“On the other hand, if a customer holds a small balance with your bank, but has large investments and other deposits elsewhere, you may want to consider being more aggressive in adjusting the rate if you want to capture more of their savings and grow your share of wallet,” comments Green.
Keep an eye on the market. Green advocates keeping tabs on how your bank compares to others in your marketplace: “Are you gaining share or losing share? Are your deposit pricing strategies impacting whether you are gaining or losing customers?” These types of questions help institutions better understand market dynamics and how a bank’s interest rate and marketing strategies might need to change.
The landscape is very competitive. “Some banks are hungry, and always craving more deposits,” says Green. To bring new business on board in a volatile rate environment, Green says you should know what road to take to achieve good results. “Institutions can use analytics to study the marketplace and figure out where they should place ads and/or branches as well as what they should offer in order to move the needle in getting new customers and keep their existing customers happy.” Knowing the market helps institutions make more competitive offers, tailor messages, and deliver them via the right channel.
No doubt, there will be a whirlwind of activity when the Federal Reserve steps away from its campaign to keep a lid on interest rates. To help capitalize on that opportunity, follow the script Green lays out above to help beef up your bank’s deposit and loan businesses.
Image Source: iStock
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