Strategies for Managing Deposit Products During Rate Cuts

Last month, the Fed cut rates to 3.75%-4.00%. That single move will lull many banks into complacency. When rates decline, customers still have dynamic needs... When rates fall, customers don't just go to sleep. Bank CFOs love to cut deposit rates quickly on rate cuts and lag rates on rate increases because the math is so compelling. Bank Marketers have a tendency to want to go quiet around rate moves because we love sharing "good news" rather than "bad news." However, customers still have financial needs. Every day, a customer has a CD maturing somewhere. Every day, a customer somewhere is getting a "large deposit" - maybe a house sale, a bonus, or an inheritance. Every day, a customer is experiencing some life event that changes their financial needs. The institutions that proactively seek to grow deposits during this moment share three habits: 1. Segment proactively. Use your data to identify segments of customers based on actual capacity and propensity for a real financial need. 2. Proactively communicate. Are you regularly and proactively reaching out to share how your solutions to their financial needs can help them? Your competitors are every day. 3. Be authentic Does your communication reinforce your unique brand and community feel? Having campaign communications that build your brand in a warm and authentic way will stand out amid all of the noise from the big banks and fintechs who are probably using generic AI-generated graphics. These are battle-tested strategies refined through hundreds of campaigns at Infusion Marketing. When an $8B regional bank needed to grow deposits without eroding margin, we used this exact playbook - segmentation, behavioral targeting, and confidence messaging - to generate $497M in new balances in a declining rate environment. The Fed’s rate cut isn’t just a macro headline. It’s a loyalty stress test. Handled right, it’s also an opportunity to prove that your marketing doesn’t just promote products, it protects your balance sheet. At Infusion Marketing, we help banks grow deposits, loans, and fee income - and we only get paid when we deliver results. If you want to stay ahead of post-cut deposit movement, message me. We’ll show you how leading community and regional banks are protecting balances before customers start to move.

My two bits on the welcome debate on making banking sector liabilities more responsive to changes in official rates so that policy rate transmission is quicker and more meaningful. Deposit portfolio has an average maturity of 1-1.5 years. So, on average, deposits are repriced automatically in falling rate scenario in a year’s time. If somehow, we can build a liabilities sub-portfolio that is repriced at roughly 3 months, it will be of great help. And if this sub-portfolio is, say, 25% of the total liabilities, much better. Smaller banks can build such portfolio with bulk deposits but large banks want to keep bulk deposits in 10-15% range. So the challenge is to get an additional 10-15% under floating rate/shorter maturity portfolio. To begin with, we need to realize that its an issue with both PSBs and big PBs where reliance on fixed rate retail deposit is very high. So, its an industry level issue. 2nd, solutions though simple are impractical, viz,: i. Building floating rate deposit franchise: It has proved difficult in retail. Retail depositors’ understanding of, and comfort with, floating rate deposit is poor even in more developed economies. Even in whole sale segment, long term floating rate deposit is not popular. Why block long term fund in an illiquid, non-market instrument! ii. Increasing share of short-term deposit where rate reset is automatic: It is impractical as any significant increase warrants higher comparative deposit rate in that segment, thus defeating the very purpose. iii. Using derivatives: Such portfolio hedges are difficult to establish and will likely be treated as trading position and hence problematic if used for any significant part of the balance-sheet. OIS market is, anyways, too small. What may, however, work for banks with adequate HQLAs (for any liquidity emergency and counter the shorter maturity profile of liabilities) is a liabilities strategy that has a balance of short-term bulk deposits, say 15% of total deposits, supplemented by 5% in CDs and money market borrowings and, may be a received OIS book for another 5% (net position may be lower depending on their compensating position o/a of credit/investment or trading portfolio, if the bank has a proper transfer pricing framework). This strategy may work in a falling or stable interest rate with easing bias scenario. The main benefit, apart from more responsive ALM, is its not very concentrated and can be easily reversed/ managed if the scenario changes. 2nd, banks can cater to wholesale deposit franchise irrespective of interest rate regime. Its also true for the CD/MM market. Finally, it will help in development of the OIS market where banks can actually play on either side. This ability plus benefit of netting of derivatives position will help in reducing the risks in their books, provide flexibility in pricing and scaling up and improve profitability at the margin.

The Future of Bank Deposits: Challenges, Strategies & the Role of Open Banking For over a decade, banks enjoyed steady deposit growth with little effort. But the game changed post-2022, as rising interest rates sparked fierce competition for deposits. Now, with rates falling again in 2024, banks must rethink their strategies to maintain profitability. Key Challenges Banks Face 🔹 Rising Competition: Traditional banks, fintechs, and neobanks are offering higher yields to attract depositors. 🔹 Customer Expectations: Digitally savvy consumers compare offers instantly, leading to higher churn rates. 🔹 Regulatory Pressure: Scrutiny over liquidity, deposit stability, and risk management is increasing. 🔹 Fintech Disruption: Neobanks like Revolut & Trade Republic offer higher rates and seamless digital experiences. Winning Strategies for Banks ✅ Boosting Non-Interest-Bearing Accounts – Incentives like cashback for salary deposits & better digital onboarding. ✅ Smarter Term Deposit Renewals – AI-driven pricing to retain rate-sensitive customers. ✅ Exploring Off-Balance-Sheet Growth – Fee-based products (money market funds, wealth management) to reduce reliance on net interest income. ✅ Personalized Offers – AI & machine learning to predict customer churn and tailor interest rates. ✅ Mobile-First Banking – Leading digital banks outperform competitors in deposit growth. ✅ Stronger Liquidity Management – AI-powered risk monitoring & early warning systems to prevent deposit outflows. How Open Banking is Disrupting Deposit Strategies 🚨 Increased Mobility – Customers can seamlessly transfer funds between banks for better rates. 🚨 Fintech & Big Tech Threats – Platforms like Apple & Google could dominate financial services. 🚨 Erosion of Inertia – Customers no longer “stick” with banks out of habit; real-time rate comparisons fuel competition. How Banks Can Leverage Open Banking for Deposits 🔹 Embedded Finance – Partnering with payroll services, retailers, and fintechs to capture deposits at source. 🔹 AI-Driven Savings – Personalized smart savings solutions that optimize deposit yields. 🔹 Fintech Collaboration – Partnering with aggregators to become the preferred deposit option. 🔹 Real-Time Rate Adjustments – Dynamic pricing and AI-driven bidding models for customer deposits. 💡 Bottom Line: Open banking is both a challenge and an opportunity. Banks that embrace AI, fintech partnerships, and embedded finance will win the deposit race. Arjun Vir Singh Sanjeev Kumar McKinsey & Company Ali Khan Adnan Khan Kartik Taneja Deepak Chandran(DC) Panagiotis Kriaris Marie Walker Ashish Singhal Sumit Srivastava Purvi Munot Mithil Ajmera Mohammed Al-Tamami Ashu Gupta Tarabut Nino Ocampo #Banking #Fintech #OpenBanking #Deposits #AI #DigitalTransformation #WealthManagement #CustomerExperience