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Market Pulse is a monthly podcast by Equifax, in partnership with Moody’s Analytics. Equifax hosts bring you interviews with industry experts on the latest economic and credit insights that can help drive better business decisions. Whether you’re in financial, mortgage, auto or another service industry, we help make sense of the latest economic conditions that impact you. This podcast series supplements our Market Pulse webinars, which occur on the first Thursday of each month.
Tom O'Neill (00:42):
Greetings. My name is Tom O'Neill, and I am part of the risk advisor team here at Equifax, where we look to bring industry trends and practices to light for our clients navigating this increasingly complex environment that we operate in. Today we're going to be talking about a topic that's really been top of mind for many lending institutions for upwards of two years now, and that is how to grow and protect our deposits. Joining me today to discuss this is Ian Wright, who is a Chief Strategy Officer at Equifax, and someone who has worked with countless clients to use financial data in their marketing efforts. So who better to help us understand how we can approach this very competitive environment? Ian, thank you so much for joining us today.
Ian Wright (01:29):
Yeah, thanks for having me, Tom. Happy to be here.
Tom O'Neill (01:32):
Happy to have you. So let me start off. So I, I sort of said in my, my preamble that, that this has been top of mind for many lending institutions for the past couple years, and we know that to be true. But let me, let me start with a, a basic question. Is it still top of mind? You know, is this still something that, that banks and credit unions and other financial institutions are wrestling with?
Ian Wright (01:54):
It is there, there is still pressure on banks and credit unions to ensure that their deposit to loan ratio is sound and within sort of regulatory limits. And there's still a tremendous amount of consumer debt in the market. So there is that pressure still on banks and credit unions to shore up their deposits. Having set that fatigue is set again, you know, as you mentioned, it's been two years since we've been in these sorts of conditions. So banks are getting a little bit sensitive to the high cost of money when they're giving out four or 5% on CD rates or, or high yield saving rates. So I, I'd say that there might have actually have been a sort of mini wave in the early fall with us seeing some new deposit account opening preferences and incentives for folks where if you would open up a new deposit account, maintain a certain balance, you're gonna get a monetary bonus. We saw some of those near the beginning of this wave. They sort of quieted down and, but we saw a couple more coming back at the beginning of the fall. So, yes, very still top of mind.
Tom O'Neill (02:59):
That's, that's very interesting. And it actually gets to a, a question that I want to ask, you know, a little bit later on. So I'll, I'll put that as a teaser out there for, for a second. see, you know, what your, your thoughts are as we head into a very different environment than we've found, you know, we've been, been in the last couple years. Mm-Hmm. But before we go that so, so it's still top of mind, which sort of you, you know, suggests that, that this is still a very competitive environment. This is not an easy task. This is not something that, that growing or protecting deposits is, is something that is, is quote unquote easy to do. Is that because there, there's still a limited pool of savings that's, that everyone's competing for? Is, is that pool growing or shrinking over time? Is it something that, you know, you know, rising waters lift all boats and and the opposite also is true? Or, or are we finding that, that it's still, you know, a very limited amount of savings out there?
Ian Wright (04:00):
Yeah. So even though overall we are seeing levels of consumer debt go up, we are still seeing levels of deposits going up. However, as you look across the economic spectrum of different consumer households in the us, we're not seeing deposits going up at every segment. For instance, if you look at the mass market segment deposits have been relatively flat over the last seven years, several years. And we see most of the accounts that the mass market folks, folks who have less than a hundred thousand dollars in total assets. We're seeing deposits be maybe just a trillion dollars higher over the last three years. Where if you go to the other end of the spectrum folks who are very affluent, let's say have more than a million dollars, we're seeing significant increases in deposits. But with those higher yield products like CDs high yield savings rates these are households that benefited from the stock market's, incredible performance, not only this year, but over the last three years. And they want to have a hedge strategy to protect some of their money. So they're pushing it into those accounts. So overall there are more deposits in the market but it's not an even sort of presence. We're seeing this concentration with the higher wealth.
Tom O'Neill (05:19):
Interesting. So, so given that, you know, we're not seeing these, the rises and falls, you know, evenly across all populations, all cohorts, all segments what have you I would imagine that that means that there's even more competition to, you know, to, to win share in those areas where deposits are growing. So if, if this is so competitive, how does an institution get an advantage in competing for those limited deposit dollars?
Ian Wright (05:49):
Yeah, there, there are really several strategies that banks can use, and we helped our client, we have helped our clients and continue to help our clients sort of enact some of these. And they're gonna vary by different bank and different situation. You have a, a nationally representative bank with a large brick and mortar presence is gonna have a different strategy, right, than a, a smaller credit union that has a more of a community banking focus. But overall one of the, the first and most beneficial steps a bank can take is look at their existing deposit base. We have insights that can very accurately estimate a household's total wealth, and then also total deposits that feed into that wealth. And so your first sort of field or market to go after are those clients that are already bringing some of their deposits to you, but it could be the case that they have significant assets held away, meaning you have a low share of their wallet.
Ian Wright (06:42):
I could have my checking account with you, but I might have a CD with one or two other institutions. Well, why not take advantage of the affinity I have for you and the lower acquisition costs to give me a higher promotional rate to bring some of that money over? Now, you're gonna want to focus though on the folks that can bring over significant deposits and really move your KPIs this year really affect that ratio we were talking about earlier. So what we can help banks do is understand which portions of their deposit base can do that can bring over those significant deposits. Another technique is to, to look at other customers. You have, if I have a credit card with you or I have a loan with you, I, I've got an affinity for you. We can also estimate the, the wealth that those households have.
Ian Wright (07:28):
You can conduct similar campaigns and promotional activities to capture those households. And a third strategy is to either through segmentation or modeling, understand who your best customers are, who, for whatever reason seem to wanna bank with you over the other choices that they have in the market. And then we can work with you to identify prospects in your geographic market. You can then go out and acquire as new customers. And, and the last thing I'd say about this is also, don't forget, though, to protect your best customers. You know, if bank A is going after everybody in the market, that's gonna include bank B's customers. So Bank B's gonna wanna look at their best customers and not forget to treat them well by providing them with those similar incentives.
Tom O'Neill (08:17):
Interesting. that totally makes sense. In fact, we, we started this off by not just saying grow deposits, but protect deposits. Yeah. So, so, you know absolutely, you know, necessary to, to not forget about that side of the coin. And, and, and we've been sort of going back to this, this notion of, of this competition for these deposit dollars. And, and that's certainly a, you know, a a leading thought and, and area of, of focus. But beyond competition from other banks or other institutions are there other challenges that, that financial institutions face in growing their deposits beyond, you know, worrying about someone taking their existing ones or, or trying to take deposits from others?
Ian Wright (09:06):
Definitely. And, and actually one area I I would focus on is non-traditional competition. So we just sort of discussed traditional competition where it's a brick and mortar bank or credit union, you know, competing for the same pie. Well, today it's a different world. There are neobanks out in the market that don't have any brick and mortar. There are FinTech apps that create relationships at a very young age when folks are teenagers for things like cash apps and payment apps that are now providing banking services. So you really have to open up your definition of who's your competition to start looking at these new entrants that are going to be attracting customers, especially the younger customers who are gonna fuel your future growth. So that's one thing to, to keep in mind. Another thing to keep in mind is churn.
Ian Wright (09:55):
And, and you mentioned as rates start to go down, if I have a, a CD that's earning, let's say 4.5% at a bank and as rates start to go down when that comes up, time for renewal, if that rate's gonna go down, you know, let's say half a point, or even go under that four level down to three, that might make me start thinking, gosh, it really even though I'm fatigued, I'm a rate hunter, though, I've been moving my money around, I'm a little bit tired of doing that. That starts to open up that gap to say, I'm gonna, you know, go back to that work I did a year ago or two years ago and start looking at my options versus kind of staying where I am. 'cause I'm earning a high enough interest.
Tom O'Neill (10:36):
Interesting. And that, that was exactly the, the question that I was going to, that I put out there as a teaser earlier on in our conversation that I wanted to come back to. So now is as good a time as any, so a as, as, as you mentioned a couple years ago, we saw that that consumers were not shy about moving their money around. We were in an, in an environment where rates were increasing and we saw that that money was being moved where, you know, the, they were able to, you know, obtain the, the highest rates. And so a lot of institutions won deposit share, you know, by being the first ones to raise the rates. Now, whether it was worth it or not, you know, that's, that's you to be determined on a case by case basis. But you know, there's no denying that, that a lot of institutions who offered the higher rates at an earlier time, they won, you know, more of the share because consumers are removing the money.
Tom O'Neill (11:33):
Yeah. We're now at entering into an environment where we anticipate rates to be going down over the foreseeable future. Do we think, and I know we're not in the business of making forecasts, but, but do we think that, you know, we could see something similar on the back end of this, this movement, you know, where as you said, you know, when I, when I, as an institution start lowering my rates I might be at risk of losing some of my mm-hmm. deposits to banks that are still staying at higher rates, or at least, you know, lowering them at a slower pace than I am. Is that something that we, we see happening and, and if so, at the same rate as we saw at the point where rates were, were rising.
Ian Wright (12:26):
So I think it's a little too early for us to see that trend occurring, but everything is setting up and primed for that, that to occur and for one of the larger banks to take that first step, kind of to break the line and bring their rates down significantly. If you start looking at just CD rates you'll see that the six month rates are still very attractive. But if you wanna start putting your money away for a little bit longer, those rates are starting to get a little bit lower, so it's gonna bleeding into the market. But no one's taken that, that sudden step of saying, okay, I'm out. I see what's coming in the future. I'm gonna take that step now, and, and pushed down because of those pressures of still needing to ensure that their deposits are growing to, to keep that ratio safe.
Ian Wright (13:14):
So I wouldn't be surprised if sometime during first quarter of next year we start to see that occur. Now having said that, some of those new entrants in the market that I mentioned some of those FinTech apps that might have banks behind them servicing their accounts they have a little more flexibility. And they also have different pressures. They might not be lending any products, so they don't have to worry about a, a ratio, really. So we might see a little bit of a break in the market of if you're willing to go with a bank that's a little bit newer and maybe doesn't have a brick and mortar building down the road that you're gonna be able to have something close to the rate that you're getting today. But maybe those traditional banks are gonna start moving back to what we saw before two years ago.
Tom O'Neill (13:58):
Interesting. Yeah. 'cause Looking historically, it's, it's been a pretty, you know, pretty safe Yeah, yeah. Trend to, to bank upon, you know? Yeah. Pun intended. Where as rates rose you, the, you know, the, the interest rates on deposits and savings accounts tagged along, but at a slower pace. But when rates dropped, those were the first things, you know, where you started to see movement. But as you're describing, you know, we're, because of the, you know, competition for deposits and, and for keeping the the ratios aligned as well as the competition that wasn't there historically. It, it skews the picture a little bit. You know, we're, we're not seeing that immediate jump down to like lower the rates. Yeah. But who knows, as you said, the, what the the beginning of 2025 brings. Let me ask you, you mentioned, you know, several of the, the like mass market and, and broad population segments that, that are targets, you know, for these different institutions. Can you provide some examples of, of specific market segments that, that financial institutions could consider when they're, they're building around these strategies, maybe segments that, that are not, you know, readily visible or, or obvious that that might contain a lot of opportunity here?
Ian Wright (15:30):
Yeah, so as you said, we, we do have those readily obvious traditional segments where if you're affluent that that's an identified household that can bring over significant assets. But there's a lot of interest today in going after what we call a young affluence. And these are, are generation Z households. So today, households that had of a head of household who's 27 years or younger and have some level of wealth, maybe a hundred thousand dollars maybe a million dollars if you can find it. So they're very attractive segment to go after for two reasons. One, they can move the needle today, they can help you meet your goals today and your objectives today. But they also present the opportunity to have a high customer lifetime value. They're younger in their journey. They have 30 to 40 years of earning ahead of them.
Ian Wright (16:21):
If they already have assets today. If you can create a level of loyalty with them, you can really kinda set yourself up for success for the future. But they're really hard to find. If you look at the generation Z overall, less than 5% of the households hold approximately half of the wealth there. And if you're looking for millionaires in that segment there are approximately 250,000 households that meet that criteria according to our research. So what we can do is help clients identify who those households are, so then they can target and really laser focus their efforts on those households. But there's actually a second segment, which is related to the, the young affluent, which is what's called Henry's in the market, or high earners, not Rich yet. So Henry, well,
Tom O'Neill (17:13):
We'll make an acronym out of anything, won't we, ?
Ian Wright (17:15):
Yeah. Yeah. If we can, we will. Now, it's not three letters, but it's nice and alliterative, so it works, right. . but so Henry's are, are households that maybe don't have a level of wealth today, but are poised to, let's say within the next three years, be able to increase their wealth substantially. And it is a modeling exercise. We don't know what the future's gonna hold at a hundred percent but we can help clients understand who has a greater likelihood to increase in wealth either at a smaller level or a substantial level. And so banks can also make sort of that investment that educated bet into looking at these households and targeting them with attractive offers, because again, they should be able to move the needle maybe a little bit today. But for the future once you establish that level of loyalty with them, you're gonna have 30 to 40 years really to develop that relationship, add in additional products such as wealth products, as they increase their wealth over time.
Tom O'Neill (18:16):
That's, that's fascinating. Now, what, what I find particularly intriguing about it, and it raises a big question, is you, you just described two different populations. Mm-Hmm. You know, the Gen Zs, the Henrys, maybe there's some overlap, you know, with, with, with some of them. But, but those, those are unique populations that are different from a large portion of the overall banking population out there. And, and you've mentioned that, that the data can help identify those populations. Say, here's, here's, here's who's a Henry and here's who's a, a, gen ZA, mass affluent, gen Z or, you know, yeah. High earner gen Z. And identification obviously is, is key, but there's also, how do we attract those? Is there anything within the data or, or within the, the, the tools out there that can say, not only can we help you identify these populations, but, but here's how you can go about approaching those. Here's what's of interest and, and how best to, to get their attention.
Ian Wright (19:21):
Definitely. And it's been a really sharp change from maybe previous generations. And a lot of that is to do with the rise of our mobile devices and these new entrants in the market. If you think about maybe when you open an account, I know when I opened an account, I followed my parents into the bank. Mm-Hmm. open up an account there. So the best way that banks could market to us was to market to my parents, and then I would follow through and more likely than not open up a bank account with them. But today, the, the lar or sorry, the, the top lemme say that again.
Ian Wright (20:00):
Today, the number one mobile banking app is Chime. And Chime is not, you know, at, its, at its core, really a banking app. They're adding banking services, but there are these fintechs and other services that are actually establishing a relationship with younger generations before they're ready to even open up a bank account, and then very conveniently offer them that service. So you've got this new competition that ties to card and payment, which then has a sort of natural entrance and natural segue for this segment to be able to create banking relationships with them. But we don't see traditional banks kind of standing pat. They're introducing similar services, similar applications, ways to engage the gen Gen z population to try to attract them. We've also seen an explosion in different social media content to try to attract them.
Ian Wright (21:00):
Tiktok has a variety of different financial sort of education videos on it. And you see banks have started last year really to, to really engage TikTok as a way to try to introduce themselves to that generation. Another, the point I would make too, which I, I should have probably made about talking about the segments, is we do have this transfer of wealth hanging out in the market, hanging over the market where we've got folks who are retiring, kind of the silent generation, who have incredible wealth, who, when they do pass away, are gonna pass that wealth down to not only folks in the Gen Z, but younger segments too. So as there is a huge effort in the market to try to accurately identify who those households are, so when they do transfer their wealth, your institution doesn't lose that to another provider, but you can maintain that deposit that, that you were deposits that you were already managing.
Tom O'Neill (21:59):
Interesting. A lot of wonderful information. Ian, I, I really appreciate you sharing all of this knowledge. It's as, as we said at the onset, this is, this is something that has not just been something top of mind for many of our clients here at Equifax, you know, for the last couple years, but remains, you know, so, and, and we will probably most likely be yeah. Still top of mind, you know, when we have these discussions next year, , that's at the end of the year. Before I wrap up is there anything else that's, that you'd want to, you know, to leave our audience with any, any further information that, that we haven't covered so far in this?
Ian Wright (22:38):
Yeah, the one thing I would say is that although there has been a focus on deposit gathering for the last two years and increased competition, new entrant into the market it's also something that banks do every day, right? Mcdonald's sells burgers, prudential sells insurance, banks wanna manage deposits. So it's always a concern for, for banks and credit unions to grow their deposit levels. It's just that we're in a highly focused and concentrated period today. So even once rates go down, I still see there will be demand for banks to try to capture higher levels of deposits. So it won't go away. But the pressure on trying to make it maybe the top priority year after year might not be there.
Tom O'Neill (23:24):
Right. Again, thank you very much for your time today, Ian, and thank you to everyone listening today, and we look forward to seeing you in the next podcast that we release. Thank you very much.
Ian Wright (23:37):
Thank you, Tom.