High interest rates on deposit products helped several smaller local banks come away from the spring banking turmoil with big hauls. But can they keep those new customers now that the crisis has passed? iStock illustration
Several local small to mid-sized banks and credit unions announced significant growth in their deposits after a series of bank collapses this spring. But the question remains how banks and credit unions can retain this new money.
Despite the widely reported flow of deposit dollars to banks seen as “too big to fail” after the commotion in March, some smaller Massachusetts financial institutions appear to have had better luck than their peers in attracting deposits. For instance, Chelsea-based Metro Credit Union reported a $200 million net gain in deposits off the back of the spring bank failures.
“We actually were able to bring in over $200 million in deposits for individuals that are really looking for a safe haven, a place that they felt safe and secure. And as such, we saw some tremendous growth that was taking place there” using certificates of deposit and money market products to attract customers Metro CEO Robert Cashman said.
For Hyannis-based Cape Cod 5, the bank acquired $260 million in new deposits the first half of the year, for a $197 million net increase in deposits – growth of 4.9 percent. CEO Matthew Burke said that the bank formed 4,700 new deposit relationships during this six-month period through what he described as an aggressive deposit acquisition and retention push that started even before the March bank failures and competition pushed Cape Cod 5 to raise its deposit yield rates.
A Race for Rates
According to latest Forbes data, the certificate of deposit rates in Massachusetts range from 4 percent to 5 percent, with the highest seen at 5.6 percent annual percentage yield. High rates like these have been a key tool banks and credit unions have deployed to attract depositors.
Burke said Cape Cod 5 raised its rates at the start of 2023 to 3.5 percent for high-yield savings accounts and 4.25 percent for an eight-month CD and has since maintained rates at those levels as it moved to try and keep deposits.
Burke vowed the bank will “proactively engage its customers,” mainly through digital marketing and advertising while still doing traditional outreach such as mailers and promotional offers for new accounts. The $5.43 billion-asset bank is also broadening its market reach from Cape Cod and Southeastern Massachusetts to include all of Eastern Massachusetts using its digital banking platform, the bank CEO said.
“We still really focused on primary customer relationships and transactional accounts. We did some promotions to encourage opening of new accounts, particularly in those markets that have seen some disruption like branch closings. Branch closings are an opportunity for us to target those markets where people care about having a physical presence of their bank,” he added.
A new survey of American bank executives by S&P Global Intelligence found that optimism about deposit growth is fading, and 56.8 percent of respondents said that they will likely increase the use of deposit rate specials in the next 12 months.
The survey found 48.7 percent of bankers expect declines in consumer deposits, 26 percent in small business deposits, 16.7 percent in government, and 14.7 percent in corporate deposits, among others.
Data to Deepen Relationships
Still, Cape Cod 5, Metro and others will be able to lean on an evolution in how financial institutions understand what their depositors want as they look for strategies to keep them.
In today’s digital age, banks and credit unions are called to cater differently to different types of customers, finding out what works when reaching out to new prospects or retaining existing clients – whether with one-on-one in-branch sessions, physical mailers, email newsletters, various digital channels or combination of different marketing tactics, said Jamie Conaghan, president of New England Financial Marketing Association (NEFMA).
Finding what works for the target customer, she said, will create loyalty to the bank and its products and services.
“I think we’ve been past the age of where it’s a one-and-done formula which works across the board,” said Conaghan, who is also the senior vice president for marketing and digital at Marlborough’s $1.5 billion-asset Main Street Bank. “It’s really a case of being thoughtful and strategic in layering your messaging in many forms, and it’s also taking a step back and looking at who is your audience because gone are the days where we’re just going to send a message to everybody and it’s going to resonate with everybody.”
In marketing lingo, “key lifestyle indicators” are important. Conaghan said these indicators reveal a customer’s pattern and behavior towards their bank accounts, which in turn helps banks cater to their needs and wants at the time and place they need it. This can also help banks detect and mitigate fraud.
“We are looking at the patterns like what are they using their accounts for? Where are they spending, and which messages will resonate with them? Not deposits, but for example, if we’re trying to target for a home equity line of credit, we can then look at our customer data and say, well, who has a mortgage, who’s spending their money at home improvement stores and who is spending their money online services and all of that,” she said.
Current data points to changes in customers’ behaviors and needs towards their bank branches. In order to attract and retain more deposits, physical bank offices have moved to be “less transactional and more about customer service” to deepen conversations and relationships when customers come into the branch.
“It’s a bit of culture change that has occurred over the past 10 to 15 years. But by really digging into specific customer needs, asking those questions, and having deeper conversations with them, banks can address the full needs of the customer,” Conaghan said.
‘Sticky’ Online and Mobile Banking
Bankers say customers’ increasing use of digital banking also paints an optimistic picture for those winning the contest for deposits that kicked off this spring – if they can keep their new depositors around for long enough.
Cambridge Savings Bank’s digital-only Ivy Bank recently reported a surge in online deposits to over $530 million from 6,600 national customers in just two years of operations. This growth is six times greater than deposits garnered by CSB’s physical branches.
Conaghan attested to this kind of data, saying that NEFMA is seeing “a decline in overall branch traffic” and that “customers are migrating over to using any online and electronic banking services” such as mobile banking apps.
A study fintech Alkami commissioned from bank consultancy Cornerstone Advisors showed 52 percent of active digital banking users deposits checks through their mobile devices. Utilization increased in the last year as well, with the average number of checks deposited each month tripling from 0.39 in 2022 to 1.16 in 2023.
The study also observed that mobile banking is ubiquitous with Gen Z and Millennials, and even 6 out of 10 Baby Boomers use mobile banking. It mentioned that only half of banks’ checking account holders are active in using mobile banking offerings, which leaves room for growth.
Nika Cataldo
“The average customer is experiencing and using more and more of these digital services. [Digital banking services] have also become more ‘sticky,’” Conaghan said. “It becomes harder and harder to switch banks online because you use services such as direct deposit or bill pay in your mobile app. That means all payees are already in the app so it creates that longevity [of usage] with the customer.”
Cornerstone Bank Executive Vice President of Retail Banking Altaf Ahmed said that when the Southbridge-based bank’s customers have become acquainted with different online banking services, and have the peace of mind that a bank employee can assist and answer their questions at any time, they warm up to using online and mobile banking for good.
“In terms of how sticky are online services, actually they are. Once customers understand them and know that there are people who they can go to bring up concerns about a particular product or a service, that is what makes it sticky. And the fact that they do get an answer back from somebody, that is extremely important to customers,” Ahmed said.
Correction 9:28 a.m. Aug. 28, 2023: An earlier version of this story misstated the duration of the 4.25 percent interest certificate of deposit offered by Cape Cod 5. That CD’s term is eight months. The story has also been updated to clarify that the $260 million increase in deposits at Cape Cod 5 referred only to new deposits.
