Wonky. It’s a fun word to say. And even though it may not be a word you use in your every day, it’s one of those words that can really sum up a scenario. According to Dictionary.com, wonky means “not exactly straight or balanced,” or “faulty, unreliable,” and even “crazy, mad.” One could argue (although few would probably disagree) that the economy has earned this quirky title recently. Between inflation, a possible recession, an in-your-face liquidity crisis, skyrocketing interest rates, and more - wonky fits well, no matter which definition you use.
Some of the biggest challenges banks and credit unions have faced in our current economy are getting more deposits and diversifying and increasing their loan portfolios. The lack of liquidity assets makes it difficult for financial institutions to be available to lend money to individuals and businesses. While we don’t know how long we’ll be on this economic teeter-totter (Months? Years?), the right strategy for your institution can increase your deposits and loan volume to help get you through and to the other side (should you prepare a long-term strategy or go for a short-term “band-aid” play?). Here, we’ll cover some strategic opportunities you can use to help ride out this rollercoaster.
Keep Your Consumers' Best Interest (Rates) in Mind
If you are reading this, there is a good chance you are not a fintech offering increasingly competitive interest rates. While it can be a challenge to get a consumer to switch their financial institution - especially if they have been a long-time consumer - the increased interest rates a lot of fintechs are offering are making people think again.
But what about your loyal consumers? They are where you want to focus when it comes to increasing your deposits. By focusing on your existing accounts, you can maximize revenue by utilizing solutions that can analyze transactional data to create targeted offers that can improve usage. Offering unsecured personal lending and credit cards can also generate loan volume with high net yields, asset flexibility, and diversification. This lets you generate deposits with a loan-for-deposit sweep program with brokered deposits.
Consider enticing your consumers to be active accountholders and thank them for staying by trying:
- Checking account referrals
- Reward checking
- Increasing interest rates on deposits
What are your pros and cons to increasing rates to keep up with the competition vs. sitting still?
Loan Purchase Programs
When it comes to diversifying your portfolio, loan programs should be your first stop. These programs can offer your institution strong net yield returns and solid underwriting guidelines. They offer a plethora of options that can grow deposits and liquidity, such as whole/participation loan programs, home equity and home improvement programs, and more. As a bonus, you can find variable rate assets that come with default coverage on many of these types of loans.
Remarket Your Marketing
Marketing is critical in promoting new, higher deposit rates and loan products and services to potential borrowers. In a liquidity crisis, financial institutions can increase their marketing efforts to raise awareness of their deposit and loan products, bring balance back to the balance sheet, and to reach more customers (considering doing this with a personal touch). This can include using targeted marketing campaigns to reach specific groups of borrowers or offering promotions and incentives to encourage borrowing.
The (Stay at) Home Loan
Technology has revolutionized the financial industry, and banks and credit unions can leverage technology to increase loan availability. This can include using online platforms to streamline the loan application process, allowing borrowers to apply for loans from the comfort of their own homes. Additionally, financial institutions can use data analytics to identify potential borrowers and tailor loan products to their needs.
Be Empowered with Data Analytics
Data analytics provide financial institutions with valuable insights into borrower behavior and preferences. By leveraging data analytics, financial institutions will better understand their customers' borrowing needs and preferences, and be empowered to develop loan products and marketing strategies that are more effective. This could include using data to identify which loan products are most popular, which marketing channels are most effective, and which borrowers are most likely to default on their loans.
The financial industry’s wonkiness may not settle anytime soon, but that doesn’t mean your institution can’t have a well-strategized plan to help stay the course. By considering these steps, financial institutions can mitigate the impact of a liquidity crisis and support economic growth.