By W.B. King
According to recent data from FDIC and NCUA, 43% of financial institutions (FIs) reported a loss in deposits from fourth quarter 2022 to third quarter 2023. Overall, 40% of credit unions and 48% of banks reported losses.
“For consumers, the deposit battle has resulted in choice and convenience with a wave of enticing offers and promotion, which include higher interest rates and cash bonuses and innovative digital banking features for you and your providers,” said MX’s Vice President of Product Crystal Anderson. “All this poses a challenge of probability, liquidity and sustainability."
Anderson shared these industry insights during the company’s latest Innovation Forum webinar, “Winning the Fight for Customer Loyalty and Business Growth.”
The Lehi, Utah-based MX offers a financial data platform and connects more than 16,000 FIs and fintechs, providing a reliable and secure data connectivity network.
“Growing and retaining deposit isn’t easy, consumer money motivations are extremely personal and diverse. There is not a one size that fits all approach other that rates to grow deposits,” she said. “And unfortunately, if you rely on rates to win, you will just as often lose on rates.”
In sharing recent MX research data, Anderson said that over the course of 2023, 50% of those surveyed have either opened a new bank account or considered switching to a new bank. Thirty-three percent of Gen X opened a bank account during this time period, 27% of millennials have considered switching to a new bank but haven’t taken action, and 75% of baby boomers have not considered opening a new account or switching a bank account.
Thirty-six percent of those polled who did switch providers and opened a new account did so for the following reasons: better service (36%), higher savings rate (22%), more convenience (10%) and lower interest rate (10%). The top reasons for choosing an FI were: trust and confidence, personal data protection, friendly and helpful staff, digital banking experience and convenience.
Recent consumer research, Anderson noted, found a correlation between trust and consumer acquisition and retention. Trust, she added, must be earned and “nurtured throughout the digital money experience.”
Instilling Trust and Quelling Fears
MX also found that while many FIs may do well individually, when it comes to instilling trust as a whole, the industry is in trouble.
“According to the 2023 Edelman Trust barometer, the financial services industry as a whole is one of the least trusted industries sectors in the world ranked only above social media. Yikes,” said Anderson. The company has been measuring citizens' trust in government, business, media and nongovernmental since 2000.
There are indications, however, that the FI industry is improving. In August 2022, MX asked consumers if they believed their providers have their best interest at heart, the response rate was 44%. Six months later, a poll found respondents trusting providers to “do the right thing” at 61%. Forty-four percent trust their providers more than they did, 78% trust their primary provider with the financial information oppose to 3% that would trust Big Tech (e.g., Apple, Google and Amazon) to securely manage their financial data.
“Despite the early influx of deposits to Apple’s new savings account, 38% of consumers say it is unlikely they will leverage a technology company to manage their finances or hold their money,” she said.
With financial stress making a person up to 20 times more likely to attempt suicide, it is all the more critical for FIs to place financial well-being at the core of its digital strategy, noted Anderson. To this end, MX found that 57% of respondents want their FI provider to help them better manage their finances. Additionally, 54% believe providers have a responsibility to empower them to be financially strong (up 15 points since January 2023). There is still work to be done, though, as 33% feel that their FIs are not supporting their needs and of that figure 45% of millennials feel their provider have to do more to support their financial needs followed by 42% of Gen Xers.
The average consumer has seven financial accounts across numerous institutions and stays on track using more than two banking apps and three to four fintech applications on their smartphone, noted Anderson. As a result, consumers do more, want more and expect more from their digital banking applications.
Eighty-two percent agree that they own their financial data but of that number 52% are unsure who has access to it, and 78% expect to be able to see their financial data in one place. Fifty percent expect their providers to deliver personalized tools, products and services and rough 61% said it easier to sign-up for a store’s reward program that apply for a new credit card.
“Today’s money experience is complicated and fragmented. Financial institutions are more than just repositories of money and data they are repositories of trust. Trust drives behaviors, builds loyalty and generates revenue opportunities,” Anderson continued. “Trust is often formed through consistency, reliability and transparency — showing up with the consumer’s best interests at heart and doing the right thing.”