Using data analytics to increase deposits at efficient interest rates

Retail banks often have to balance growth objectives by increasing total deposits and still have the ability to set competitive deposit rates within the industry. Deposits fuel revenue and the lending operations of banks. When the Federal Reserve raises interest rates, it becomes challenging for banks to retain or gather deposits as customers get attracted to higher rates available in money-market and other investments. Rising competition from big banks and new digital players, make it challenging for small- and mid-sized banks to achieve deposit growth and increase the earning potential of the bank.

Applying artificial intelligence and predictive analytics techniques provide one piece toward solving this challenge and optimizing the pricing of deposits as well as the timing of new customer acquisition campaigns.

At a macro level, analytics can help you achieve your deposit growth strategy by increasing the effectiveness of your marketing campaigns. At the micro level, analytics can be used to focus on sales, cross-selling and attrition goals by deepening customer relationships, producing relevant lists of clients you should be talking to and communicating what differentiates your brand.

Leverage Big Data for pricing efficient deposit rates

Your bank strives for “efficient” deposit rates. You do not need to have the most depositors at any time or the largest number of deposits per day. You strive for efficiency, which, in this case, means that your consumer deposit accounts are not costing your bank more in interest rates and in the cost of obtaining new depositors than you are earning on the money deposited.

To achieve this efficiency, your bank should examine both internal and external data sources. Internal data includes information about your customers’ behaviors. This could include the price point at which your customers switch their money into a CD for a higher return, or whether your customers use your bank strictly as a depository from which to draw funds as they pay bills, and many other behaviors.

External data sources include social media, public perception of your bank versus your competitors, and the interest rates offered by other players.

Some examples of how banks are using analytics to efficiently price interest rates

According to the American Banker

  • Fifth Third Bank – uses analytics to analyze demand curves, deposit flows within households and interest rates, aiming to find the ideal deposit price based on deposit volume and the maximum amount of interest expense it’s willing to incur.
  • Bank of the West– also uses analytics to develop “relationship pricing” for different customers. The bank gathers intelligence on all services a customer uses across the organization and generates customized prices using miRevenue software from Zafin in Palo Alto, Calif.
  • Bank of Montrealalso uses analytics to examine internal customer data as well as competitor pricing data.

Use a client-based approach to increase deposits

Look to your current clients first to see what motivates their depositing behavior. AI and bank deposit analytics can break your current customer behavior down to a granular level, allowing you to tailor personalized, compelling marketing message for products and services to meet their needs.

Customer segmentation

Customer segmentation will help your bank to divide specific target markets and member commonalities into specific targeted groups. This activity will assist in optimizing marketing spend, in acquiring deposits and ensuring effective reach to the right member for the right deposit programs.

Cross-selling

It is always far more cost-effective to cultivate current clients than it is to attract new ones, as your current clientele already have a sense of loyalty toward your institution. Cross-selling deposit accounts to existing members is one of the best ways to grow core deposits. An analysis of existing member behavior through data analytics helps you determine current product penetration and propensity by member as well as any gaps in products within your existing member-base. Correct usage of analytics will pinpoint marketing opportunities to promote high-interest yielding deposit accounts to your current members.

Controlling Customer Attrition

Data analytics is helping banks to gain greater insights into their member’ needs, preferences and likely behaviors that cause switching of financial institutions. This valuable information enables the development of member loyalty strategies that strengthen the bank’s ability to retain the members and in effect the members’ deposits that are costly to attain.

Use a forward-thinking strategy to attract new client deposits

Data analytics can help you target the high-growth, high-opportunity member segments, create more relevant messages and product offers, and promote your deposit services to the right prospective member, with the right message, at the right time.

If a strategy involving your data analytics is not working as you had expected, re-examine the data, the analysis and any market conditions that may have changed since you implemented your approach.

Analytics-driven insights pave the way for effective business strategies

Using a data-driven marketing strategy can ensure the best ROI for your bank.

If you find that you do not have the appropriate personnel on hand to analyze your data properly and devise a strategy, turn to a company that specializes in banking analytics. The team at PKSI has years of experience analyzing both internal and external data, presenting it in an understandable format so that you can make the correct decisions for your bank.

Contact PKSI today to explore the possibilities of data-driven banking decisions.

Bonnya Mukherjee
Financial Analyst, Pegasus Knowledge Solutions

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