Even though “wonky” may not be a word you use every day, it’s one of those words that can really sum up a scenario. While “wonkonomy” [wonky + economy] may not be the most official economic term, we argue that the recent economy has felt wonky post-pandemic. Between inflation, a liquidity crisis, skyrocketing interest rates, and geopolitical unrest, the economy has felt anything but stable.
Two of the biggest challenges banks and credit unions are facing in our current economy are:
- getting more deposits and,
- diversifying and increasing loan portfolios.
The lack of liquidity assets make lending more difficult for financial institutions. While we don’t know how long we’ll be on this economic teeter-totter (Months? Years?), the right strategy for your institution can increase your deposits and loan volume to help get you through and to the other side. Here are four strategic opportunities you can use to help ride out this wonky economy.
1. Keep Your Consumers Best Interest (Rates) in Mind
Is your institution struggling to offer interest rates competitive with fintechs? While it can be a challenge to get a consumer to switch their financial institution - especially if they have been a long-time accountholder - the appealing interest rates many fintechs offer are making people think again.
Focus on your loyal consumers when it comes to increasing your deposits. By focusing on your existing accounts, you can maximize revenue by utilizing solutions that can analyze transactional data to create targeted offers that can improve usage. Offering unsecured personal lending and credit cards can also generate loan volume with high net yields, asset flexibility, and diversification. This helps generate deposits with a loan-for-deposit sweep program with brokered deposits.
Consider enticing your consumers to stay active and thank them for their loyalty by offering rewards based on activity, such as:
- Checking account referrals
- Reward checking
- Increasing interest rates on deposits
What are your pros and cons to increasing rates to keep up with the competition vs. sitting still?
2. Upgrade Your Marketing
Marketing is critical in promoting new, higher deposit rates and loan products and services to potential borrowers. In a liquidity crisis, financial institutions should increase their marketing efforts to raise awareness of their deposit and loan products and reach more customers. A marketing strategy isn’t complete without a video marketing element. 96% of people have watched an explainer (short-form) video to learn about a new product or service.[1] Make sure your marketing team is leveraging short-form video with a personal touch to cut through the noise of marketing offers.
3. Lien Into Loan Purchase Programs
When it comes to diversifying your portfolio, loan programs should be your first stop. These programs can offer your institution strong net yield returns and solid underwriting guidelines. They offer a plethora of options that can grow deposits and liquidity, such as whole/participation loan programs, home equity and home improvement programs, and more. As a bonus, you can find variable-rate assets that come with default coverage on many of these types of loans.
Pairing new loan opportunities with loan application technology ramps up lending. Using online platforms to streamline the loan application process and allowing borrowers to apply for loans from the comfort of their own homes can increase loan availability. Additionally, financial institutions can use data analytics to identify potential borrowers and tailor loan products to their needs.
4. Be Empowered with Data Analytics
Data analytics provide financial institutions with valuable insights into borrower behavior and preferences. By leveraging data analytics, financial institutions will better understand their customers' borrowing needs and preferences, and are empowered to develop loan products and marketing strategies that are more effective and the best use of marketing dollars. This could include using data to identify which loan products are most popular, which marketing channels are most effective, and which borrowers are most likely to default on their loans.
The financial industry’s wonkiness may not settle anytime soon, but that doesn’t mean your institution can’t have a well-strategized plan to help stay the course. By considering these steps, financial institutions can mitigate the impact of a liquidity crisis.
[1] https://wyzowl.s3.eu-west-2.amazonaws.com/pdfs/Wyzowl-Video-Survey-2023.pdf