This newsletter completes our three-newsletter focus on “select deposit strategies that are working.” Up to this point we discussed:

 

1. Channel/distribution expansion
2. Aggressive pricing
3. New product introduction
4. Sub-segment marketing

 

Today’s newsletter focuses on a fifth area, “customer development programs,” and discusses several deposit generation tactics for your consideration.

 

Customer Development Programs

As outlined by Bill Hippensteel of BBVA Compass in a recent speech, customer development programs include: acquisition of multiple product relationships, onboarding, and targeting analytics.

 

* Acquisition of multiple product relationships. Our client work demonstrates that effective cross-sell results in higher average loans and deposit balances. Having a deeper bank relationship typically results in larger balances in deposit.

 

Even for transactional lenders, the need for deposits is changing their approach. As part of our work for the Equipment Leasing & Finance Foundation we have been interviewing senior leaders at a cross-section of equipment financing companies, some of which are bank-owned. Years ago, many of these bank-owned leasing companies almost proudly proclaimed that they did not depend on or interact very much with the traditional bank or its products. No more. Finally, in light of capital and deposit constraints, virtually all the bank-owned lessors with whom we have spoken are now cross-selling extensively into the “core” bank’s clients.

 

In addition, bank management increasingly insist that lessors focus on generating deposits from their clients, no matter where they are located. The availability of RDC (remote deposit capture) technology means that a leasing company headquartered in the west with clients in the east can capture at least some of their deposits. In today’s environment, bank-owned transactional lenders have the opportunity and, in fact, the mandate to transition to building a multiple product relationship.

 

* Onboarding. An efficient onboarding process is critical to allow for the opportunity to cross-sell. “Know your customer” and other compliance related requirements made the account opening process more complex. However, we have seen a number of banks streamline their onboarding to allow for bankers to focus on a more consultative sales process. If it takes 45 minutes to open an account, no cross-sell will occur as both the customer and the banker will be too exhausted to do so.

 

In our experience, most cross-sell occurs either at the time of account opening or within six months of opening. Therefore, rigorous follow-up needs to be part of the onboarding process. And, it needs to consist of more than a survey letter checking on client satisfaction. Many banks will find that a strong call center effort will pay off for them.

 

* Targeting analytics. When we work with clients, we are often surprised about how much bankers do not know about their customers. Further, many operate with only a limited sense of urgency about addressing this information gap. Lack of technology is the most frequent reason cited for this gap, but more frequently culture and a lack of will on the part of top management also play key parts in creating this problem.

 

In Bill Hippensteel’s presentation, he provided an example of an analytic focus with a deposit orientation. The bank decided to understand those customers with one product at the bank but without a checking account. The right process for this target analysis included: “discipline around the supporting process” (namely, people know and fulfill their responsibilities) and “employees held responsible for quality and consistency.” Linking the analytics to specific performance goals (“translate your financial plan into a business performance plan based on drivers of profitability”) gives power to the analytic process. Analysis for the sake of analysis is worthless; tying the analysis into specific performance expectations for bankers makes the analysis a powerful tool for deposit growth.

 

Other Tactics for Deposit Growth

Beyond the topics discussed in this and previous newsletters there are additional tactics that banks need to consider as part of their deposit growth process, including:

 

1. Book all deposits and loans in the branch. Branch managers need to feel ownership of deposits, including their largest potential area for focus, business deposits.
2. Ensure that deposit generation offers the highest incentive. To this day some managers believe that bankers will do “the right thing” and focus on deposits, even if they are not incented to do so. We remain skeptical on this point. As one banker told us last year, “They say they want deposits, but they incent for loans.” Understandably, that is what he focused on. Instead, incentives should focus on low-cost deposit generation.
3. Require a common sales approach. Too often bankers and branch mangers make up their own rules concerning sales policies. While we do not want to squash entrepreneurial instincts, in fact most bankers are poor salespeople. Most need to follow a routine that management insists upon.
4. Consider deposit concierges. One of our past clients hired locally connected businesspeople to generate deposits. Some were paid a small salary with an unlimited upside tied to deposit volume and quality (that is, cost). While the bank would provide loans to the clients uncovered by the concierges they did so to obtain the low-cost deposits.

Concluding Thought

Banks can achieve deposit growth if they develop a consistent and disciplined approach to deposit generation. The strategies and tools are multiple and best practice insights are available to those who wish to learn from them. Management simply needs to determine what works best for the bank and then rigorously execute. Other than ensuring strong risk management procedures, no other area is as critical to a bank’s growth and, even more basic, survival.