Just a few years ago, a number of our consulting projects focused on how to increase deposits, particularly from the business customer who could provide a bank with deposits that were multiples of those provided by a typical consumer. Many banks wanted low cost deposits and were frustrated by low deposit levels and deposit customer turnover. Our work often began by assessing the bank’s product offer to determine if the product set was competitive. We also reviewed how the bank was organized to capture deposits. Oftentimes, the business bankers, in particular, had little interest in gathering deposits; instead, they remained focused on lending.
In some cases, our recommendations highlighted the need for the bank to appoint a chief deposit officer, that is, someone whose main focus was getting the entire bank to emphasize demand deposits and other low cost funding every day. Almost always, our recommendations centered on the need to change compensation so that bankers shifted at least some of their attention from loans to deposits.
In addition to a focus on growing deposits, we also completed (and continue to work on) projects related to attracting emerging and mass affluent customers and their investment portfolios. Depending on the bank these customers might have from $25,000-$250,000 or more to invest. They represent not the “1%”, but rather a customer set that is large in number albeit relatively small in investable dollars.
Go away saver.
Let’s look at where we are today. While largely undiscussed by the government or media, a tremendous and disturbing transfer of wealth from the saver to the borrower has been occurring for several years. Many banks and private equity investments are still alive because of low interest rates. In contrast, savers are suffering from historically low returns. Those who have done the “right thing”, that is, paid their mortgage and saved, have suffered. It is not too extreme to suggest that those on fixed incomes have, in effect, indirectly contributed to some of the bonuses of the Wall Street crowd and government-supported banks.
Ironically, at many banks, the savers, those who did not overextend themselves in the last decade, are now in a banks’ dog house. Last year, as reported by Bloomberg News, in August BNY Mellon announced that it would charge 13 basis points to institutions depositing more than $50 million; obviously, that represents an unusual and infrequent situation. In November, the Los Angeles Times reported that banks were also charging much smaller companies for deposits. Bank of America was charging a 20 cent fee for every $100 in cash deposited after an initial $10,000. Citibank and Chase were also cited as charging for deposits above $5,000 and $7,500, respectively. One business commentator on YouTube called these actions a “cash grab” by banks.
There is no way most people or small businesses will understand the economics that drive banks to charge for depositing cash. That said, most banks have not even attempted to explain their stance to the public.
As for investments, in February the New York Post and others reported that JPMorgan Chase had stated that “Most customers with less than $100,000 in investments and deposits are no longer ‘profitable’ for JPMorgan Chase. The head of the bank’s consumer group stated this will have “consequences for people [meaning the below $100,000 group] depending on what their status is and what their options are.”
Giving gifts to “Occupy Wall Street”.
A bank cannot make money from a customer who brings a $100,000 deposit??? My advice is hire FIC or someone to figure out why. If it is short term phenomenon, then manage to it, and wait for the market turn. If it is a long-term problem, streamline processes, reduce costs, lower bonuses, etc. This situation further alienates the 99 percent. Banks need to stop giving more ammunition to those who do not appreciate how community oriented and ethical most banks are. The above makes it easy for critics. And, by the way, actions like the above make it reasonable for critics to be angry.
Hello, non banks.
Last year, new account openings at credit unions occurred at twice the rate of the previous year. Do we really need to ask why? Credit Unions are now open to anyone. Many actually want deposits. As for small businesses, more private equity-fueled small business lenders seem to be entering the competitive fray every day. They are more expensive, but they are also more responsive. Credit unions, community banks, and well targeted regionals, among others, all have been given an opportunity by the big banks rejecting some customer segments.
Banks may be making a big mistake by alienating savers.
Many years ago, when I was a young banker at Citibank, I remember calling a company that was on our prospect list. Going through the thick paper marketing files was a trip through history. When I gathered the courage to make the cold call, I spoke with the owner who was, to say the least, of a mature age. He told me that Citibank had turned him down for a loan 30 years before my wavering voice reached him. He was polite, more or less, and hung up.
Concluding thought.
Careful bankers, in future years, more customers may have more options because of reinvigorated and growing competitors fueled by technology-based innovation. Banks that seem unresponsive to their customer also risk being hung up on.