Gaining Ground – How Community Financial Institutions Can Win the Battle for Deposits and Grow Revenue

By: Cindy Draper


The war for deposits is fiercer than ever, and community financial institutions are likely losing the battle for deposit share to their larger rivals. Recent FDIC data shows a loss of deposits at financial institutions with less than $10 billion of assets over the last year, while larger institutions actually grew their assets during the same period.

For many community financial institutions, their first instinct is to raise rates to help reverse this trend, but there are other more effective strategies they should consider first – many of which play directly to their strengths.

With deposits, it is not only a question of growth, but of net growth. How many new accounts are opened is irrelevant if a bank or credit union is closing that many or more. A net-zero trend may as well be negative when it comes to overall growth. Additionally, while competition is growing, the market itself is shrinking. Due to industry consolidation along with the rise of FinTechs and digital payment options, there are simply fewer current and potential checking accounts than there were five years ago – underscoring the importance of community financial institutions getting the most from their deposit strategies.

Often overlooked is the critical first step: having an effective checking account acquisition strategy in place. It is crucial that banks and credit unions review their current products and services to make sure they not only are clear and offer a convenient experience for account holders, but that they also target the right audience. If not, they should consider revamping or upgrading to one that does.

As an example, creating programs that are more attractive to younger Millennials and Gen Z account holders, while challenging, can be an effective way to increase deposits. A recent case study of some of Velocity Solutions’ financial institution clients showed that of roughly 27,000 referred checking accounts over a 10-year period, 61 percent of account holders were under the age of 38. What’s more, these accounts tended to be very healthy and active, and as a result, more profitable for the financial institutions. Data also indicates that referred account holders are more likely to participate in referral programs themselves, driving increased organic growth. The key with Millennials and Gen Z account holders is providing convenient, consistent, long-term programs that are user-friendly and easy for account holders to refer to their own social networks.


Doing What They Do Best

Despite increasingly direct access to more financial institution and non-institution financial service providers than ever before, many consumers prefer to work with a “one-stop shop” when it comes to their financial needs. Getting that initial, primary account is the key to establishing a long-term relationship and opening the door to future opportunities. Checking accounts have proven to be one of the best methods to attract new account holders and begin that relationship.

Once established, community banks and credit unions must ensure that their staff is building the relationship by accurately assessing the account holder’s future financial plans. Looking beyond the initial, immediate lift of adding a new account and focusing more on the account holder’s financial needs as a whole is a critical component to building these long-term account holder relationships – and that all starts with asking the right questions.

Texas-based Legend Bank has realized significant deposit growth by making this a priority. With a focus on staff training and leveraging data to gain a better picture of its current account holders, the bank has seen these accounts, and subsequently, their own opportunities, continue to expand. According to Toni Lucky, Chief Operations Officer and EVP for Legend Bank, “We have been fortunate to see success in our quest for growing deposits by training our bankers and building internal partnerships to grow relationships with existing account holders. We’ve done this by encouraging deposits to account holders with loans and asking for additional business from our existing account holders, so we can become their primary bank. It’s taken a comprehensive approach, across several areas, to reach and maintain our deposit growth goals.”

Inherently, community banks and credit unions have a strategic advantage over their larger counterparts when it comes to consumer trust. Because they tend to be prominent fixtures within their local business landscape, with a strong likelihood of serving account holders who personally know one another, community financial institutions are positioned to successfully leverage localized, word-of-mouth campaigns to gain new account holders. This can be especially effective when it comes to those potential account holders looking for a new financial home. In fact, data from an Ernst & Young Global Banking Survey suggests over 70 percent of people will consult a friend, family or colleague before selecting their next primary financial institution.

Additionally, while today’s consumers like convenience, they also value their privacy, especially when it comes to financial or banking matters. Most people still prefer not to “financially undress” in front of others – giving sensitive data like social security numbers, balance amounts or paycheck details. They want professionals they can trust who can answer those questions, and their first stop is often the local branch. Providing professional, meaningful counsel to account holders can have a tremendous impact in further establishing the financial institution as a trusted and knowledgeable financial advisor for their current needs, while ensuring they remain top-of-mind for future opportunities.

Account retention is often difficult work, and financial institution executives should embrace the challenge of actively monitoring existing accounts to help minimize attrition. Any significant changes within an account—for instance, a sudden decline or cessation of debit card transactions—should warrant closer review and possible quick action. By the time an account holder officially closes an account, he or she has likely moved to a competitor weeks (or even months) prior, leaving minimal funds in the account. Catching these shifts early is the only way to effectively curb losses before they happen. Unfortunately, some level of attrition is inevitable, and executives should have an “offboarding” strategy in place as well. Being able to closely track what is leaving, where it is going, and assess details, such as the ability to match rates for full relationships, can provide key marketing opportunities now as well as help craft strategies to pursue and re-engage those accounts in the future.


Delivery Channel is Defined by the Account holder

In today’s market, community banks and credit unions must consider the quality of their digital and mobile capabilities. Account holders expect to be able to see an instant snapshot of their entire financial landscape, regardless of device, location or time of day. Offering this level of convenience is no longer a differentiator – it is a requirement in the eyes of most consumers. It also keeps them engaged as well as creates cross-selling and marketing opportunities.

Additionally, expanding current digital offerings can be an effective way to grow or tap new account holder markets. This could even help community financial institutions reclaim revenue in areas that may have once been more active, such as small business lending. Traditionally, many small businesses saw community financial institutions as their go-to for loans, but recent trends suggest this has been shifting. However, by leveraging improved digital lending capabilities, community financial institutions can regain this lost ground and re-establish their position to local business owners.

While bringing in new deposits will always be important, it is just one part of a successful growth strategy. Real growth is defined by the way banks and credit unions nurture these relationships once they have gained the accounts. Competition for deposits is strong, but today’s community financial institutions have many tools they can use that play to their strengths and position them for success. By leveraging their trusted relationships and data, and creating attractive, easily accessible programs and products for the right account holders, they can continue to gain ground in their markets.