Blogs

In today’s day and age, how people conduct their banking is shifting.  Non-financial companies are appealing to consumers through their innovative products and services, which may lead to accountholders choosing to forgo their traditional banking relationship. A few examples include: Venmo users in their twenties have preferred to keep funds within their Venmo account rather than in a financial institution account. Venmo also recently announced that parents may sign up their teenagers for their own accounts. Apple has also introduced a high-yield savings account attached to Apple Cards. Many consumers have opted to purchase a reloadable card at a retailer rather than seek an account at a financial institution. The impact has already been seen. Per FDIC Quarterly reports, deposits held at FDIC-insured institutions have mostly decreased each quarter since the 1st quarter of 2022, with a slight increase shown between 2023 into 2024. Payment volumes flowing through “overlay services” or apps which aren’t backed by financial institutions are also consistently increasing each year.

As a financial institution, this presents a short-term risk of competing over deposits as well as the long-term risk of a cultural change with newer generations utilizing apps instead of traditional financial services. With that in mind, here are tips and information to consider when competing for deposits:

1. Your financial institution has an app, too.  Speak to your core system or Third-Party Service Providers about your institution’s app. Don’t just look at commonly available features. Ask about the bells and whistles that make the app fun, easy and convenient to use.
2. Incentives for activities. Compare the perks and offerings of popular brands, like Apple, to your organization’s debit or credit card offerings and consider implementing them at your organization. Be sure to look into any points, cash back, interest bonuses, discounts at various merchants, gift card rewards, etc. and see how you can remain competitive.
3. Yields on deposit accounts. With interest rates at financial institutions being low for the past two decades, this creates an opportunity for account holders to shop around for other deposit products at different organizations.  Especially for account holders with fewer services with an institution, the closure of a savings account places them one step closer to leaving your institution entirely.
4. Financial institutions dominate with loans. While organizations like Walmart and Home Depot have tried (and failed) in the past to obtain a national bank charter to expand their financial service offerings, financial institutions have the advantage as the major lenders in the United States and can use that to cross-sell their deposit products. Furthermore, organizations can incentivize automatic payments from their deposit account to their loan.
5. Deposits in apps are not FDIC insured. If deposits are held in an app and the company that owns that app fails, those deposits could disappear, and consumers would have a legal fight on their hands with bankruptcy courts to get any funds back. With this being public knowledge, you can advise consumers of the risks of this practice.
6. Lend a hand, understand context and offer second chances. Life happens. Jobs are lost or major unexpected bills arise, which can cause financial strain on consumers. Consider the context of any missing loan payments or overdrawn deposit accounts before taking possible action. If an account holder is drowning through events out of their control, help them out when you can and they’ll reward you with loyalty.
7. Offer reloadable cards.  Not just gift cards, but cards that can be replenished with funds via ACH or card network transfers. Within retailers, many of the reloadable cards have been purchased by the underbanked, who have lost their accounts at a financial institution.  Reloadable cards involve replenishing funds only with credit transfers and disallowing debits (like ACH) posting to the card other than the user swiping it to make a purchase.
8. Look for received Point of Sale Standard Entry Class Code Transactions.  When debit cards are swiped at retailers, interchange fees are charged by issuing institutions.  One way around those fees is to offer an ACH-based plastic card that creates POS Debit transactions to send along the ACH Network.  Usually with these cards, there are incentives such as the 5% discount for the Red Card product at Target. Your account holder may soon have a wallet full of plastic cards to use for this or that…  But what if they could just use one card for all transactions (your Debit Card) and feel good about the incentives that it provides?
9. Reach out to the younger generations.  Work with parents and guardians, like Venmo currently is, to offer products to teenagers. Also, consider tailoring services that can fit their needs as they mature. Great experiences at a young age will instill brand loyalty.
10. Community outreach. PayPal/Venmo, Zelle^®, Cash App and other overlay services don’t have branches in local communities. This doesn’t allow for community outreach that institutions can provide to the markets they support with their products. Charity, school and community events should be attended and possibly sponsored by an institution. Also, offering to speak at a school can help educate students and create appreciation for what your institution has to offer.
11. Study data from users utilizing Apps. From your financial institution records, your organization may study consumers’ transactions from common apps such as Venmo and Zelle^®, as well as other transaction activity from this account holder.  This could help you see patterns and create a strategy on how to better serve your account holders.  If you see a particular app growing in popularity within your data, research the app and consider attempting to replicate features within your own app. Utilize analytics to study your own data to realize trends for marketing your own products.
12. Good customer service. Clients want immediate assistance. Any long holding times, delays and failures to return calls could cause account holders to seek other financial services. Investing in services like online chats or interactive guides can also show that a financial institution cares about helping its account holders.
13. Watch instant payment systems closely.  While many apps use ACH or card networks, they may begin migrating to FedNow^® and/or RTP^® for more instantaneous, 24/7/365 and instantly settling payment needs.  Zelle^® has recently begun to use RTP^® and others could follow.  The more that apps provide services beyond traditional cutoff times, weekends or holidays, the more market share they may gain.
14. Consider using a national app for your P2P/A2A services. Companies like Zelle^® are utilized by many financial institutions to act as their P2P/A2A vendor that plugs directly into the financial institution’s app. Utilizing a widely-known company for this service could take advantage of their national brand while also easily transacting with those on their network, it also runs the risk of introducing your account holders to the company, too, which is why branding on your app and services is important.
15. Monitor businesses for changes in B2B payment needs.  Many businesses may use and re-use their ACH and Wire templates to help handle their cash management and Business to Business (B2B).  However, as management teams change and attempt to consider options, an increased demand for instant payments may arise. Listen very carefully to what your business clients are requesting to ensure you’re providing what they need to avoid losing accounts to competitors.

These are just a few tips to consider as your team determines your strategies. The payments industry continues to become more and more competitive, and it's important for your financial institution to be aware of what other organizations are offering. And, while the competitive focus has historically been on other financial institutions, it’s time for organizations to look beyond their traditional competitors to remain relevant.