In times of a liquidity crisis, financial institutions may feel the market is uncertain as they face a unique set of challenges, particularly in the competition for deposits as they find themselves engaged in a tough battle to attract and retain deposits. In this article, we’ll take a look at the current uphill battle FIs are combatting to gain deposits and five tips to help you emerge victorious. As the demand for liquidity intensifies and consumer sentiment becomes cautious, it becomes crucial for FIs to devise effective strategies while maintaining stability and confidence in the market.
Before we dip into those strategies though, let’s look at the landscape in which financial institutions operate during a liquidity crisis.
Financial institutions need to recognize this mindset and respond accordingly.
A liquidity crisis tends to trigger intensified competition among financial institutions. Depositors become more discerning in their choices, exploring various institutions to secure the best possible deals. This competitive environment places added pressure on institutions to differentiate themselves and offer attractive deposit products and rates. With this, institutions must continuously monitor the market and adjust their strategies to stay ahead of the competition. And now, those strategies and best practices.
Tip #1: Communication
Clear communication is vital now more than ever. You must proactively communicate with your consumers, assuring them of the institution's strength, stability, and safety of their deposits. Implementing a robust communication strategy can build trust and differentiate your institution from competitors. In this era of digital transformation, customers expect convenience, accessibility, and personalized experiences. Financial institutions must be willing to adapt to these evolving expectations.
Tip #2: Diversify
FIs should also be diversifying their deposit offerings to cater to different customer segments. Focus on opportunities such as whole and participation loans along with various types of deposit accounts, such as savings accounts, certificates of deposit (CDs), or money market accounts, each with distinct features and benefits. This diversification can help capture a broader customer base and satisfy varying deposit needs.
Learn more about stabilizing your balance sheet by watching the webinar: Stability in the Liquidity Crisis: Stabilize Your Credit Union’s Balance Sheet
Tip #3: Digitize
Embracing digital transformation is no longer optional, it's a necessity. You must invest in modernizing your digital platforms, improving user experience, expanding digital banking services, and maximizing your efficiency in delivering digital experiences. Seamless online account opening, robust mobile banking apps, and personalized digital interactions can differentiate you from other financial institutions and help attract new depositors – all with the goal to be frictionless.
Tip #4: Partnerships
Partnering with fintech companies and other financial institutions can unlock new opportunities for deposit growth. Joint ventures, strategic alliances, and partnerships can lead to innovative product offerings, expanded customer reach, and improved access to funding sources. By leveraging the strengths of multiple entities, financial institutions can gain a competitive edge.
Tip #5: Re-Focus on Members
Building strong relationships with existing customers is critical during a liquidity crisis. Institutions must focus on personalized member engagement, offering tailored solutions, personalized offers, and loyalty programs. By understanding individual needs and providing exceptional service, institutions can foster loyalty and increase deposit retention.
Financial institutions are facing a tiring battle when it comes to deposits during a liquidity crisis. The heightened risk aversion, intensified competition, evolving customer expectations, cost of funds, and regulatory constraints all contribute to the challenges at hand. However, with careful planning, adaptability, and a customer-centric approach, your institution can emerge victorious in this battle for deposits, ensuring their long-term growth and stability even during the most challenging times.