The concern for deposits seems to be taking over the headlines lately.
A recent report by Jack Henry™ reveals the biggest strategic priority among bank and credit union CEOs is growing deposits.[1]
Considering U.S. banks lost $472 billion in deposits in the first quarter of 2023, their intent is well warranted. This deposit decline was the largest in 39 years (since the FDIC began collecting quarterly industry data in 1984).[2] Although the decline has not been as sharp during the second quarter of 2023, it’s still a major concern.
In addition to the gap in deposits, financial institutions continue to see new competition entering.
Fintech firms are the biggest competitive threat among CEOs according to the 2023 Jack Henry Strategic Priorities Benchmark Study.[3] What’s more, is a recent survey from Bank Director indicates 42% of banks consider neobanks, such as Chime, a top competitive threat – especially when competing for consumer deposits, while 31% considered payment providers such as Square and PayPal main competitors.[4]
Apple is also making advances in its competitive stance in a big way with a recent announcement of its savings account, which brought in $5B in deposits since its launch in April – offering a high-yield APY of 4.15%.[5]
Banks and Credit Unions are Challenged to Prioritize and Invest in Both Digital and Branch
To gather deposits and remain competitive, you must continue to invest in digital enhancements.
Digital banking leads in top investment spend by both banks and credit unions with 90% of financial institutions planning to embed fintechs into their existing digital banking experience.
While leading technologies include payments (65%), digital marketing (60%), and consumer financial health (64%), branches still play a critical role. Although digital spend is increasing, branches are considered equally significant.[6] As a matter of fact, a recent Bank Director study shared almost 50% of financial institutions said the digital and branch channels are similarly critical to their growth strategy.[7]
Payment Fragmentation Continues
Payments remain to be a priority in 2023 and 2024.
Emerging payment rails such as real-time payments and P2P must co-exist with legacy payment types such as ACH and card, with financial institutions and accountholders alike struggling to make sense of differing payment types, settlements, speed, and cost.
According to the Jack Henry Strategic Priorities Benchmark Study, 90% of financial institutions have plans to add a new payment type within the next two years, with FedNowSM Service ranking as the number one payments service planned (66%), followed by contactless cards (46%) and a P2P alternative to Zelle coming in third (35%).[8]
Serving Younger Consumers Remains Challenging
Many financial institutions struggle with having the proper tools and solutions in place to serve younger demographics, specifically Gen Z. In fact, only 18% of banks feel confident they have the tools in place to effectively serve Gen Z, with 29% unsure and 53% stating they’re not confident they have the right tools in place.
Furthermore, 75% of banks within the $5-$10B asset range feel unprepared to serve Gen Z.[9]
Key Tips to Combine Deposit, Digital, and Payment Strategies While Serving Younger Consumers:
- Connect your bank deposit growth strategy to your payment strategy.
The ability to receive payments is crucial to the success of incoming deposits. With new real-time payment rails such as RTP® and FedNow, consumers must be able to send and receive money whenever and however they choose. The same goes for P2P payments. Historically, fintech firms have dominated the P2P market. How can you take back market share in this space? By integrating multiple P2P options, bolstering awareness of payment options, and educating your consumers and businesses on new rails (as well as differences in payment options). Additionally, you can use simple transaction analysis to help monitor both the dollar and transaction volume of deposits going to fintech firms like Venmo, PayPal, and Square.
- Invest in end-to-end, digital account opening solutions.
According to the Financial Brand, the inconvenience of switching accounts used to be an effective defense against losing direct deposits and the status of “preferred financial institution” that often came with it.[10] As fintechs now make it easier than ever for consumers to change where they deposit their paychecks – offering digital account opening solutions that only take about 90 seconds to make a switch – banks and credit unions need to get more active about playing defense when trying to retain direct deposits siphoned away by fintech firms. Offering end-to-end mobile and digital account opening solutions is a good start in gathering more deposits and meeting your consumers' needs.
- Consider the digital needs of younger generations.
Digital account opening solutions that address the current market include mobile account opening with no deposit required, early paycheck access, automated or round-off savings, and digital communication with branch personnel. Using data to make proactive suggestions or reminders to accountholders about things they’ll benefit from, such as setting up direct deposits or notifications when a bill is due, as well as rewarding users for good digital behavior are all critical. Consumers also need help balancing spending and saving priorities. With most people still living paycheck to paycheck, accountholders said they want personalized money management advice and support through their mobile banking app, as well as help with saving and understanding their cash flow. In fact, more than 50% of accountholders say they may switch to a competitor for better money management capabilities.[11]
- Form a digital wallet strategy.
Digital wallets are the leading payment method globally, both in e-commerce and at the point of sale – surpassing cash for in-store payments for the first time this year. What’s more, is digital wallets surpassed credit card transaction value for ecommerce transactions in the U.S. last year, [12] with almost one-fourth of accountholders using digital wallets once per week.[13] As technology advances, PayPal, Apple, and Square are aggressively competing in this space as digital wallets are becoming much more than just a storage unit for cards. By 2027, 72% of smartphone users will be digital wallet users as wallet providers are expected to move toward super app status and further entrench themselves in our everyday lives.
[1] Strategic Priorities Benchmark Study, Jack Henry, accessed September 29, 2023.
[2] FDIC: US Bank Deposits Dropped by Most in 39 Years to Start 2023, Yahoo Finance, accessed September 29, 2023.
[3] Strategic Priorities Benchmark Study, Jack Henry, accessed September 29, 2023.
[4] Bank Technology Survey, Bank Director and Jack Henry, accessed September 29, 2023.
[5] Apple Card’s Savings account by Goldman Sachs reaches over $10 billion in deposits, Press Release, accessed September 29, 2023.
[6] Strategic Priorities Benchmark Study, Jack Henry, accessed September 29, 2023.
[7] Bank Technology Survey, Bank Director and Jack Henry, accessed September 29, 2023.
[8] Strategic Priorities Benchmark Study, Jack Henry, accessed September 29, 2023.
[9] Bank Technology Survey, Bank Director and Jack Henry, accessed September 29, 2023.
[10] In the Battle for Direct-Deposit Relationships, New Technology Is a Game Changer, The Financial Brand, accessed September 29, 2023.
[11] Can Banks Deliver the Personalized Financial Wellness Tools Consumers Crave?, The Financial Brand, accessed September 29, 2023.
[12] FIS Worldpay, Global Payments Report, May 2023
[13] Javelin Strategy & Research, 2023
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