Responding to the Liquidity Crunch

Recent bank failures demand that bankers scrutinize their portfolios and cash reserves and determine whether they’d be able to withstand a crisis or economic downturn.

Bank deposits have been waning for a year – even before Silicon Valley Bank put the industry on high alert. Stimulus payments from the federal government, expanded unemployment benefits and reduced consumer spending resulted in a flood of cash moving into consumers’ bank accounts during the first year of the pandemic, in addition to a number of accommodations directed at companies. These actions spiked liquidity for banks; now, that artificial bump is receding. Today, personal savings rates hover at around 4%, reaching lows not seen since 2008.

The competition for deposits is hot. And as with many other aspects of life, banks need to take a digital-first approach. An increasing number of alternative deposit options are coming from fintechs and big tech offerings that are highly competitive interest rates – for example Apple’s 4.15% high-yield savings account – banks must be more engaging, innovative and accessible to retain and grow relationships. And high-yield savings accounts are not the only competition: Treasury bonds, money market accounts, certificates of deposits and other investments are all competing for consumers’ cash.

Banks must find innovative ways to respond effectively and compete with peers, fintechs and big tech to retain and grow deposits. They must create an intuitive, engaging shopping experiences that treat customers as known and valued relationships. Understanding that customers have a choice, banks should leverage their customers data to personalize offers and make the deposit process more seamless and easy. If a customer has a large surplus in their checking account, a bank may offer them a one-click to open a competitive savings account. These offers can be integrated into a customer’s mobile and online banking channels, which mitigates limited cross-sell opportunities at the branch. The benefit of digital is that customers can engage on their own terms and timing.

Presenting deposit products as a storefront with a familiar e-commerce type experience allows banks to present targeted offers that are relevant to specific segments and audiences. It’s a more personalized and engaging experience, one that resonates with customers and increases their likelihood of opening a deposit account. Banks can offer a diverse range of deposit options, such as fixed or recurring deposits, that help customers meet their specific financial goals. This intuitive approach flips the traditional banking experience on its head, eliminating the need for accountholders to fill out long forms and search for products. It’s the way banking should be done.

The importance of better deposit experiences cannot be overstated in today’s economic landscape. Banks have an opportunity to reengage customers and grow wallet share by leveraging the trust that people have for the bank that knows them. They can do this by prioritizing personalization, simplicity and convenience, and presenting deposit products within a targeted storefront that are relevant to their specific segments and audiences. Focusing on these key areas allows banks to maintain solid liquidity ratios and continue to support their customers’ future needs. Strategic deposit gathering is a critical part of helping to support economic stability and ensure that the financial system remains resilient in the face of uncertainty.