Brick-and-mortar banks are unlikely to
Arbor Bank, in Omaha, Nebraska, is banking on the idea that many customers value their relationships with the $543 million-asset institution enough not to hightail it to another institution with splashier rates. The bank is using deposit pricing software from The CorePoint, a company that helps financial institutions price and sell long-term savings deposits, to aid in its discussion with customers wanting to open a certificate of deposit. Instead of presenting a rate sheet, bankers will discuss needs and goals with customers, customize CD rates and terms if needed, show them how Arbor's rates stack up with competitors — even those exceeding what Arbor is prepared to offer — and if necessary, pitch an invitation-only high-yield "companion" savings account.
Decisions about how to price yields on savings accounts, money market deposit accounts and CDs is a hot topic among financial institutions of all sizes as the Federal Reserve
A growing number of economists and lawmakers think the Fed has gone too far in its battle against inflation. Powell is worried it hasn't gone far enough.
Large and superregional banks are likelier than credit unions and community banks to use price optimization and rate-setting technology, rather than simply benchmarking themselves against their competitors. These tools can help measure price sensitivity and elasticity among customers, and may assist banks to vary the rates awarded to deposit customers based on the balances they bring to the table, their relationship with the bank and other factors.
Arbor's use of deposit pricing technology has resulted in a recent spike in deposits at the bank. Arbor introduced the companion savings account this year. In August, Arbor booked $18 million of CD deposits, out of a total of $51 million of CD deposits in its portfolio.
In a rising rate environment, "people are asking you if you are going to raise your rate," said Paul Olson, president of Arbor Bank. The bank looks at deposits as both a source of funding and an opening into deeper customer relationships, such as by cross-selling mortgage and insurance products.
"We are a fast-growing bank on the loan side," said Olson. "We've learned the hard way you have to be ahead of the curve on getting those deposits."
But rate isn't everything.
"There is a very large segment of customers that care about things other than the rate," said Rohan Shah, a senior director at Simon-Kucher & Partners in the financial services sector. "Some online banks compete only on rate. The way for the more established banks to beat them is by having the branch network and features like money management tools."
Shah said Simon-Kucher has worked with banks over the past year to integrate gamified savings, personalization, financial health management and more into their banking experiences. These banks have subsequently retained and acquired new customers without offering the highest rate in the market.
Brand awareness is an important factor when customers are considering their options. When J.D. Power asked consumers in its monthly surveys in July and August what factors are important to them beyond interest rate when selecting a high-yield savings account, 51% chose "familiarity with the bank."
"This data suggests that lesser-known direct or neobanks, which are growing in number, may offer attractive rates but customer sensitivity to brand awareness is increasing," said Jennifer White, senior director of banking and payments intelligence at J.D. Power.
Olson, at Arbor, wants to avoid a scenario where customers ask the bank to match a rate they saw advertised elsewhere. Instead, he wants his bankers to serve more as consultants who discuss with clients what they want to do with their money.
"Sometimes the best rate possible in the newspaper is counterproductive to what you want to do," Olson said.
Bankers may ask, "What are you looking to do with this money? Do you have an investment time horizon?" he said. "That starts a conversation more about, 'Well, I need to hold on to this until Christmas, because I'm going to use it for Christmas presents,' or, 'Yeah, this is just my safety net. So I don't care how long it sits there.' "
The CoreCD software from The CorePoint helps bankers get their point across. When discussing CDs with customers on the phone or in person, they can use the program to generate offers by pulling the application up on their browser and entering details such as the depositor's location and amount they want to lock up in a CD. The application will calculate offers based on the deposit amount, according to what The CorePoint's bank clients are willing to pay.
If a customer thinks the offer is low, the banker can ask if there is another financial institution they were considering for a comparable CD. They can instantly bring up a list of competitors and the rates they have recently offered. Some may be higher; in that case the banker will calculate the difference as a dollar amount per month, to demonstrate that ultimately it may be minimal — or not worth the time or effort to begin a relationship with this other financial institution. The data that The CorePoint uses may come from the financial institution's license from S&P, Curinos, another provider, or by doing their own research.
"Paul wants his frontline retail bankers to negotiate as if they were a commercial lender," said Neil Stanley, CEO of The CorePoint. "Not, 'Here is our bottom-line interest rate.' "
Sometimes a banker will identify a genuinely better option for the customer outside the bank.
"The reality is that sometimes people want to chase rates," said Olson. "But we want the relationship. A lot of times you get it even when you say, here are the numbers laid out in front of you." He finds that customers appreciate the conversation and transparency.
If a customer is still not convinced, Arbor bankers will pull out one last stop: a Companion Savings account that yields 2.1% and is only available to those who open a new CD.
"It's a reward for commitment," said Stanley. "Arbor can't change its rates to those of Synchrony, Marcus and Ally out of the gate."
The bank publicized this savings account through an email campaign, rather than more broadly in the newspaper, because "if you are next to someone offering more, you lose," said Olson.
The next step for the industry as a whole is to get even more granular, according to Shah. The current buzzword is "1:1 pricing" or "personalized pricing," he said, meaning rates are personalized at the individual customer level rather than customer segment.
"That does not exist today but the industry is moving in that direction," Shah said.
