Financial institutions have become more risk-aware following the Fed’s interest rate hikes, an uncertain economy and recent challenges facing regional banks. But a solid deposit growth strategy can help financial institutions reduce their risk.

In episode 22 of our Market Pulse podcast, Tom O’Neill, a risk consultant with Equifax, and Mark Toro, a marketing consulting leader with the Financial Services Group at Equifax, talk about what goes into a deposit growth strategy, how financial institutions can benefit and how data plays a critical role.

For the full interview, listen to our podcast.

Or keep reading for an abbreviated version of our podcast interview.

For those of us who aren't familiar with the deposit growth strategy, what is it?

Tom O’Neill: It’s the desire for banks and other institutions to grow the amount of deposits they have on hand. And that's important because that's how banks do business. Obviously, banks make money by lending that out, but they need to have that money to lend out. And that's where deposits play such a critical role. 

Fighting for deposits, so to speak, has never been too much of an issue. But recently, that's changed. The Fed has raised interest rates in its desire to combat inflation. And in many cases, that's given consumers attractive options for deposits. That’s why we’re hearing so much interest in how we grow these deposits, and it's also why we're seeing so many banks do things like raise their saving rates to levels that were unheard of just a year or so ago.

What does an effective deposit growth strategy look like, and is it the same for all financial institutions, whether you're a large bank or a small credit union?

Mark Toro: I think an effective deposit growth strategy really is a mix of art and science. First and foremost, it's imperative to leverage precision data to understand the share of household wallet that a financial institution has. So, the institution needs a surgical-like knowledge of the deposit opportunity for their existing customers as well prospective customers in their markets. That’s how the bank or the credit union can stand out in a competitive environment. 

When you consider the nuances across banks and credit unions for their deposit growth strategies, the fundamental actions are the same. However, the approach may be slightly different. For example, a credit union may target households that are likely to hold $25,000 or more in a deposit-centric strategy. Whereas that same deposit targeting threshold for a regional or a national bank may target more affluent populations. 

Additionally, it depends on the audience and whether that credit union has a simultaneous objective to increase the member base. A credit union may choose to target a slice of their portfolio or customer base and focus on, let's say, the indirect auto portfolio where member affinity is not as strong. The brand doesn't resonate as much with those customers, but there's opportunity to grow deposits because there is a foot through the door, so to speak.

What is the role of data in a deposit growth strategy?

Mark Toro: Using differentiated data and insights is non-negotiable for any deposit growth strategy in the current environment, or really any environment for that matter. Banks and credit unions have to first understand the share of household wallet, as mentioned, so they can identify the deposit growth opportunity. Next, you need to understand who within their market has the financial capacity to take advantage of special offers, such as teaser rates or cash incentives. We also think it's imperative that an institution understands the types of household assets and the various characteristics of existing customers and prospects, such as demographic or life stage attributes, and psychographic.

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The Market Pulse podcast is available wherever you listen to podcasts. This episode was a continuation of our conversation of the February Market Pulse webinar. You can access it on-demand and sign up for our next webinar.