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Data, Demographics and Deposits - December 2017 Performance Analytics Workshop Recap

January 25, 2018
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In December, Raddon held its quarterly seminars for participants in the Performance Analytics program.  This program provides financial institutions with comprehensive analytics and peer benchmarks that measure performance across all areas of the organization and helps guide strategic initiatives.  The workshops facilitate a review of the latest research findings and offer a platform for discussing how financial institutions can respond to the challenges they face today.

This past cycle, there were 13 meetings across the U.S. with over 360 attendees from 83 unique institutions.  While there was a wide range of roles represented at the workshops – from C-level to marketing to branch operations and product managers – a notable trend that has started to emerge is:

  1. A growing number of attendees who have the word “data” in their title.  Indeed, at every workshop there seemed to be at least one to a handful of Data Analysts, Data Specialists and even Data Scientists.  This development is a clear reflection that financial institutions are recognizing the need to more effectively harness and leverage the plethora of data at their disposal in order to enhance marketing, product design and operations.

    Meanwhile, one of the central topics discussed at the workshops related to:
  2. The demographic forces at play and how they are poised to shape financial services in the coming decade.  On one hand, there is a large swath of older consumers approaching or in retirement which portends a “Silver Tsunami” as they age out of the workforce, or age out entirely, to put it kindly.  At the other end of the spectrum are two sizeable generations – Millennials and Gen Z – who are starting to encounter key financial milestones and imbue their economic influence. 

    As this bi-modal demographic shift unfolds there is likely to be significant pressure on both the housing and deposit arenas. 

    With regard to housing, retirees will be looking to downsize their place of residence which will swell the supply of large, expensive homes that a smaller Gen X generation won’t be able to support from a demand standpoint.  At the same time, we highlighted the growing desire for home ownership among Millennials – though a shortage of starter homes will present challenges for first-time home buyers.  Accordingly, we talked about strategies and aspects of first-time home buyer programs that institutions should deploy to position themselves as advocates for aspiring Millennial homeowners and how to translate those efforts into becoming their mortgage lender of choice.

    While these trends will have great influence on housing and mortgage lending in the coming years, perhaps an even more profound development on the horizon is that:
  3. Deposit management will become substantially more complex over the foreseeable future. In the near-term, the obvious deposit challenges entail rising rates and stiffer competition for funds.  But with demographics in mind, there are perhaps even more significant ramifications over the mid-term and long-term. 

    At the workshops, we noted that, at the average institution, over 75 percent of deposits are held by older households, those from the Traditionalist and Baby Boomer generations. 

    As these consumers age out and their wealth transfers to younger generations, financial institutions will be challenged to not only retain these deposits, but also replace them as younger households will be prone to utilize these funds to pay down debt (student loans and credit cards) and make significant purchases (homes and autos), rather than simply re-park these dollars at their parent’s or grandparent’s institution.  In turn, financial institutions would be keen to develop strategies to readily identify beneficiaries of funds and promote themselves as trusted advisors who can help young customers effectively manage their newfound windfall.

    Another implication of these dynamics is that investment services will need to become a key extension of organizations’ deposit strategies.  Consider that, on the heels of a protracted low-rate environment and significant gains in the stock market, many young consumers have likely been conditioned to believe that traditional deposit instruments are not an adequate means of generating return on their funds.  Indeed, it would not be unreasonable to suggest that many Millennials have little familiarity with Certificates of Deposit; in turn, financial institutions need to acknowledge their duty and the opportunity to develop deeper relationships with these consumers as emerging investors seeking to manage inheritances and build wealth.

    Similarly, while rates are on the rise, they are still low by historic standards.  Thus, it remains to be seen how appealing CD offers in the 2 to 3 percent range will be to older consumers who recall the days they could earn over 5 percent even in liquid accounts, much less a time deposit. 

    With the consumer’s current sentiment towards saving in mind, a few key takeaways from our deposit conversations were that investment guidance will continue to resonate with customers across the age spectrum, and that marketing – rather than pricing and product design per se – will need to become more robust, creative and central to deposit sales efforts.  

All in all, the magnitude of emerging challenges for the industry elicited great discussion at the recent December workshops…and presumably, organizations will now be tasking their data gurus to identify the relevant metrics and deeper analytics that will help drive success in this rapidly changing operating environment.