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How Important Are Low-Cost Deposits?
Our analysis of 15 factors that have underpinned superior shareholder value shows that the most prevalent characteristic of the best 20% of regional bank performers was advantaged low-cost deposit funding.
This was true pre-crisis, during the crisis, and more recently. (A list of other factors that were assessed is included in this paper.)
Currently, rates are low on all deposit types, but when rates increase, checking balances will be particularly precious.
What Objectives for Deposits Make Sense?
We see three key objectives for deposits:
1. Increase the mix of higher-balance, no- or low-rate deposits from small businesses and consumers. Note: the "beta" benefit when rates increase varies widely among banks, dominated by deposit mix differences
2. Capitalize on the ability to use advanced analytics to identify businesses and consumers that offer attractive deposits, including new prospects and cross-sell opportunities. In helping clients with such campaigns, it has been possible to achieve ROMI (return on marketing investment) of 300% to 1,000+% with rapid payback
3. Achieve additional cross-sales of loans and other services from the targeted consumers and businesses that open new deposit accounts.
Are These Goals Feasible to Achieve? ...
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