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Crisis in Promotional Deposit Pricing

By Hank Israel and Andrew Frisbie, Novantas

This article was selected as “Best of the Week” in BAI Banking Strategies

Price promotions long have been an important tool for deposit-gathering, both to meet long-term funding goals and to quickly acquire balances in special situations. While the deposit-rich environment of recent years has muted much of the need for deposit promotions, these campaigns are set to proliferate as banks seek funding to accelerate loan growth and begin to cope with rising rates.

But even as deposit price promotions gain fresh industry attention, their effectiveness is being undercut by diminishing returns. Campaigns that initially had strong success in prior years are progressively losing energy. In a vicious cycle, the bank is left in a position of needing to launch more promotions, yet each campaign is less effective than the one that came before.

Why is this happening? One culprit is web-enabled shopping, which has diminished the punch of local promotions as consumers effortlessly monitor rate trends and offers nation-wide. Another is growing consumer price sensitivity in expectation of rising rates. Established account holders are increasingly motivated to grab promotional offers; which have the counterproductive effect of raising the interest carry on current balances.

It is a potentially serious situation that will require improvement in the metrics, skills and strategies used to drive deposit-gathering – even among the many banks that have made significant progress in recent years. The advent of promotional fatigue has changed the basis of customer decision-making, particularly key assumptions about their behavior.

Read the full article at BAI Banking Strategies…

Changing Influences Chart

 

For more information, contact Novantas Marketing

+1 (212) 901-2772


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