It’s been said so often that it’s now a refrain: We need more deposits! For bankers and credit union executives across the country, it’s on repeat. And financial institution leaders are trying everything from the traditional (high-interest CDs) to the disruptive (digital-only offerings).
However, balancing how much you gain in deposits with what you spend to capture them is an important part of the equation. And “sticky” deposits – those that are retained longer and provide cross-sell opportunities – generate lower cost of funds (COF) and greater return on marketing investment (ROMI). What makes deposits sticky, what are the benefits of sticky deposits, and how can you attract sticky deposits? That’s what we’re here to explore together. Read on.
What makes deposits “sticky?”
For financial institutions (FIs) that care about competing on experience rather than price alone, you don’t just want to attract deposits, you want to gain engaged customers. Traditionally, offering exceptional customer service in person at branches was the best strategy to do that.
But while the in-person experience is still important to many consumers, you also need to create a strong digital experience for the people who prefer online banking, which is a sizable market. In a 2022 PYMNTS survey, just under half of all respondents said they were very interested in digital-only banking services.
In addition, according to J.D. Power research, customer satisfaction increases when they believe their bank supports them during challenging economic times. 63% of consumers who receive support from their financial institution say they definitely won’t switch banks. In other words, supporting financial wellness is another way to make those deposits sticky.
So we’ve got customer relations, digital banking experience, and financial wellness support as the primary ingredients to longer-lasting loyalty. Why do they matter?
2 worthy benefits of sticky deposits
1. Sticky deposits extend the life of each relationship.
For community banks and credit unions, the amount of new business you gain often matters less than how much of it you keep. Attracting a new deposit that stays with your FI for the term of a year benefits the institution for a year. Earning a member or customer who continues doing business with your institution for many years to come will keep paying dividends over the long term. Competing on price can produce a big temporary boost, but focusing on relationship marketing leads to deposit stability. Capturing the business of one consumer who banks with you for a decade uses fewer resources than attracting ten new rate chasers. It’s also more profitable. Increasing customer retention by a mere 5% can increase profits anywhere from 25% to upwards of 95%, according to research from Outbound Engine. And, as mentioned earlier, the deposits belong to the FI, the ability to cross-sell is easier, and both you and your customer or member enjoy the benefits of a cohesive banking experience.
2. Sticky deposits bolster your balance sheet.
In Plinqit’s State of Savings consumer research study, 91% of all recipients said they were saving. Even in the midst of inflation and a looming recession, consumers understand the importance of setting money aside. People care about improving their financial habits and working toward their savings goals. Helping them accomplish that isn’t just good for them, though, it has tangible benefits for you as well. The institution gets stickier, long-term deposits that increase your reserves and enable you to make more loans. Plus, resources that contribute to financial wellness education tend to have a positive impact on average account balance. That keeps more money in your hands. And consumers who have more money saved are in a better position to consider other financial products you may want to cross-sell. A customer will only come to you for an auto loan when they’ve determined they can afford a car. Create a healthier balance sheet when you provide financial literacy support combined with an appealing user experience on top of consistent customer service and you’ll see depositors stay longer, provide positive reviews, and consider your full product suite.
3 ways financial institutions attract sticky deposits
1. Offer a high-yield savings account.
Beyond new markets, a well-marketed brand with a competitive product offering, such as a high-yield savings account (HYSA), can attract valuable members and customers. High-interest savings accounts tend to draw high-net-worth individuals. The key is in how you design and market the product. After all, not all “opened” accounts are created equal. HYSAs are an excellent product to start with because they attract savers who want to invest their capital wisely. These individuals also likely have future financial goals that will present opportunities for additional products and expanded wallet share. For individuals who want to buy a home, save for a car, or start investing, a high-yield savings product supports progress toward those goals.
The same goes for younger generations. A notable portion of younger consumers tend to prioritize savings and are looking for information on many channels, including social media. This presents a timely opportunity for digital banking brands that can meet this audience segment in the digital realm. By communicating the benefits of a HYSA through the right digital channels, you can attract younger account holders who may be saving for the future.
Not sure if this is a viable tactic? Consider Apple’s success with Goldman Sachs. Apple Card’s high-yield Savings account offered by Goldman Sachs reached over $10 billion in deposits from users in less than 6 months. The product is marketed largely to iPhone users through the Apple Wallet and other digital channels. Banks of all sizes can take a similar approach with an affinity brand and a core HYSA.
Offering a fintech product that helps people improve their financial situation can inspire loyalty, ensuring the new deposits you attract are stickier. High Yield Savings by Plinqit is an excellent example. Whereas 1 in 2 online account opens are abandoned, with High Yield Savings (HYS) by Plinqit only 1 in 10 people abandon and 3 out of 4 go all the way to funding, making your marketing dollars go further.
2. Improve the digital experience.
With the right fintech partner, banks can offer added benefits or product lines that transform new depositors into stickier customers and members, and make them feel valued.
For FIs dipping their toe into the digital space, take inspiration from peers using their current core technology with a newer account opening platform, like Mantl. Banks have seen success with a CD offering and generated deposits with this simple-to-implement option.
Those ready to jump feet first are launching with a modern core. Citizens Bank of Edmund took this approach, building Roger with Nymbus. Charles E. Potts, ICBA executive vice president and chief innovation officer, puts it this way: “There is nothing more difficult for a bank to undergo than a core vendor change. It’s like open-heart surgery. Switching out a core system is the most complex, difficult thing that a bank will undertake.” In the same article, Eric Devine, president and CEO at Vitex, which advises community banks on core contract evaluations, decisions, and conversions, says it makes sense to begin assessing a core change 24 to 30 months before your current contract expires. Going the route of a new core is a time- and resource-intensive process, which makes it extremely cost-prohibitive for community banks to test new offerings, branding, or a new market.
There is now another option for banks ready to explore an affinity brand. The High Yield Savings by Plinqit platform is a fraction of the cost of a complete digital bank offering but allows a fully white-label way to test your affinity brand idea. Several banks have already seen success within weeks of going live. In fact, 73% of accounts opened get funded, and two-thirds, 69%, of those funded are deposits from Chase, CapOne, Bank of America, and Wells Fargo. Knowing that more than half of all online applications are abandoned, it’s a striking endorsement of what Plinqit has built for those banks considering a white-label digital brand.
3. Offer a specialized digital brand.
In the last few years, a growing number of traditional FIs have stepped into this territory, launching separate digital-only brands to attract new consumers and grow deposits outside their branch networks. Generally, it’s been larger players and their peers that have launched digital affinity brands. Goldman Sachs launched Marcus by Goldman Sachs, and in 2019, and KeyBank acquired Laurel Road, which provides tailored solutions for healthcare and business professionals.
However, launching an affinity brand is not just a tactic for large national banks. With the right product offering, it’s also an effective growth strategy for regional and community financial institutions.
For established financial institutions, creating a separate digital banking unit focused on a specific audience is oftentimes faster and more effective than making changes across their existing organization. This approach also fosters agility and iteration, which is crucial when testing out a new brand, product line, and go-to-market strategy. A digital side brand can experiment and respond more swiftly to market changes and customer needs than a larger institution.
Nurturing relationships is your specialty. Attracting them is ours. Together, we can help your bank or credit union not only draw new consumers but keep them longer and happier. If you’re curious about High Yield Savings by Plinqit, request a demo or contact us here.