This blog is part 2 of a 3-part series.
In part one of this series, we covered the friction that hinders deposits. It’s time to get curious about that friction and ask questions like: Why does friction exist? Who is feeling the most friction? And what would make the biggest impact with the least effort?
The Fed rate hikes in 2022 set a liquidity crisis in motion. While liquidity metrics have since improved — to levels previously seen before the 2022 rate hike — it’s still reflexive to be concerned about the market’s vulnerabilities. Hindsight is 20/20, so having a strategy in place helps to neutralize the potential effects of future market vulnerabilities. One thing to keep in mind though — the way people bank has changed and is changing — so the banking services you offer must be fluid enough to produce both a seamless deposit experience and profit.
Before we talk strategic solutions, let’s look at some trends impacting money management and movement:
Key Trends
(As reported in the NCUA Quarterly Credit Union Data Summary 2024 Q1)
- Balance sheet assets saw cash increase by 33%, bringing total cash to $215.1 billion.1
- Deposits crept up 2.4% from 2023 to 2024 (Q1)1
- 78% of Americans choose mobile banking over in-branch banking.2
- Over half of Americans haven’t written a check in over a year.2
- Loan volume is down but loan amounts are higher making lending “growth”, well, neutral.
- Credit union membership declined in all asset sizes except those with at least $1 billion in assets.1
All in all, the depository whiplash may be slowing down but there is still pressure to stabilize deposits because what, where, how, when, and why of people moving their money is changing. And the depository institution with the savviest rewards, rates, and depository processes are earning the business. Seeing a decline in a credit union’s membership in a highly competitive market is a red flag.
(This is where deep analytics on your portfolio become your guidebook for strategic planning.)
As you take a closer look at your portfolio before closing year-end books, ask: What can we move off or add to the portfolio?
4 Alternative Organic Deposits Strategies:
Q: Do you know what the biggest difference is between the recovery of the 2008 financial crisis and now?
A: Tools.
There are more tools available to financial institutions compared to 16 years ago. Allied offers depository institutions a wide-range of inorganic avenues to supplement organic growth and enhance revenue for more balanced liquidity ratios. Alternative deposits will provide agility for the hard years and be additional yield for the years of plenty.
Here are 4 ways financial institutions of all sizes have rebounded from the liquidity crisis.
- They accessed a pool of super prime HELOCS.
- Awarded higher account activity with a plug-and-play rewards program.
- Implemented competitive direct marketing solutions that build non-interest income that stand up under regulatory scrutiny.
- Offered short-term loans for quicker asset gains.
The ongoing whiplash of fluctuating liquidity growth and losses highlights how critical it is to diversify revenue streams for now and in the future. While quick gains can be made, truly strategizing to stabilize will require consistent portfolio evaluation, risk monitoring, and holistic consultation.
Stay tuned for part 3 of this series on Allied Insights.
https://ncua.gov/files/publications/analysis/quarterly-data-summary-2024-Q1.pdf
https://www.gobankingrates.com/banking/mobile/banking-future-2024-next-digital-trends-for-money-management/