The New Market Reality of Deposit Rate Promotions

by tom 25. April 2016 14:25

Market Rates Insight has just celebrated its 31st anniversary, and over the last three decades we have seen trends come and go. Throughout that time, deposit rate promotions have proven to be the mainstay of banking business development. Bans and credit unions have continued to promote the best deposit rates to attract new customers and, once they’re hooked, offer additional products and services to increase share of wallet.

Things have changed.

Coming out of a climate of ongoing depressed deposit rates, banks are credit unions are dealing with a new typeimage of customer and a new market climate. Deposit rate promotions don’t have the impact they used to, and they don’t have the lasting returns terms of customer retention and cross-sell and upsell. Let’s consider what has changed:

  1. A new generation of banking customers has entered the market that has no appreciation for the competitive landscape for deposit rates that ruled before the Web. Today’s college graduates and Millenials want convenience over returns. They are saving their money, but they are shopping for frictionless transactions, mobile banking, peer-to-peer payments, and services that make their lives visibly easier. Convenience trumps returns, at least for those just entering the workplace who are still new banking customers.
  2. There is more competition than ever. Consumers have more financial services and banking options than ever before. Most of today’s consumers have become accustomed to using hyper-specialized services, so they think nothing of depositing their savings in one location while using another institution for checking or simple transactions. There isn’t the  same perceived need to find a single bank or credit union that can serve all your needs, and as a result there isn’t the same sense of customer loyalty as in the past. Plus there are new tech competitors emerging to compete for consumer financial services.
  3. The Web also has contributed to deposit churn. In addition to more competition, finding better deals has become easier than ever. Online promotions and the simplicity of Web search has made alternative deposit options easier to find, so consumers will shop for deals.
  4. It’s easier to switch institutions. The Internet has changed the way we bank, and it has become easier than ever to change banks or credit unions with the click of a mouse. Some customers chase rates looking for better returns, especially since deposit rates have been stagnant for so long. Many consumers however, are starting to split up their money, using different institutions or opening multiple checking, savings, and credit card accounts to meet different needs.

When you consider the alternatives and possibilities presented to consumers in this new market climate it’s no wonder that they look beyond deposit rates when looking for a home for their money. So how do financial institutions compete in this new market? They have to play the game and look beyond deposit rates to attract customers and build profits.

Consumers want simplicity, convenience, and to a degree a “cool” factor from their financial institutions. They may consider deposit rates for savings but the return on deposits doesn’t offer the immediate appeal it once did. Deposit rates aren’t sexy. So while maintaining competitive deposit rates is still vital for customer retention, what is bringing new depositors in the door are promotions that offer something new and innovative.

One of the side effects of the Web is promotion fatigue. Consumers are bombarded with offers from vendors of all kinds, including banks. All it takes is a simple Google search for “best deposit rates” to set off a steady stream of promotions delivered to your Facebook and email box. So how do you compete in this new market climate? As the old saying goes, “If you can’t beat them…”

Banks and credit unions need better “hooks” to gain consumer attention. They need to appeal to the new demand for convenience, offer better customer service, and an target promotions to what consumers expect from the new generation of financial services. Banks need to do more consumer research, gather more competitive data, use more analytics, and gain a more in-depth understanding of what makes their customers expect and want. Then banks can develop the right mix of products and services including mobile banking, peer-to-peer  transfers, security, and so forth to attract new customers.

Those financial institutions that gain a better handle on the needs of the new consumer will be in a better position to retool their promotions to attract new business. Today’s consumers are going to come for the latest “cool” services and features, but they will stay for the deposit rates.

Building Customer Loyalty Requires Old School Customer Service

by tom 18. March 2016 17:13

Last week we talked about mobile technology and how mobile banking is a vital part of banking for younger customers. However, in developing that blog post we made a classic marketing mistake – we assumed that all Millennials are exactly alike. Good customer service (and customer retention) begins by treating customers as unique individuals, not just as part of a demographic.

When developing bank products it’s always challenging to create a new deposit or loan offering that meets everyone’s needs. One of the “a ha” moments from developing last week’s blog is that it’s not just mobile banking services that are attracting Millennial, but the variety of banking alternatives that are emerging, each with a unique differentiator. Venmo, for example, uses peer-to-peer payment, but also has a social media component; in addition to paying friends you can tell your social contacts who you paid and what you paid them. Number26, on the other hand, focuses on helping customers manage their money and avoid overdrafts. There is no one size fits all, but a service for every kind of customer. Many customers are probably using more than one financial service to meet various needs.image

We are starting to see some banks take the same approach. We maintain a database of banking products, ProductBuilder Alert, and recently we have started to see more banks offer products such as “build your own” checking account. Rather than locking customers into one of terms, banks are offering options on return rates, additional fees, debit cards, and other standardized options. Clearly, more banks and credit unions realize that they have to offer customized banking to appeal to the new generation of customers.

In the Financial Brand there is a recent article that addresses the need for customized banking services, “It’s Time to Stop Treating Millennials as a Single Segment.” The author cites statistics from a recent study by the Schulman Research Center that surveyed Millennials about their financial goals and there was quite a range in the objectives:

  • 60 percent of younger Millennials (18-24) are worried about living expense but as they get older (30-34) focus is on financial independence and standard of living.
  • 60 percent of younger customers want money for emergencies but that drops to 34 percent in the 30-34 age range.
  • 40 percent of the 18-24 group want to use more money for fun, but only 22 percent cited that as a goal after age 30.

You get her ideas. Customer needs differ and change and smart bankers are designing products with the flexibility to meet changing needs. How younger customers address their financial needs differs as well. College graduates and those entering the workforce are more vulnerable and have less cash to invest. They also are more likely to turn to their friends for financial advice (which is why all these financial startups are thriving). Risk aversion changes over time as well. Younger customers are risk averse where the older Millennial segment has more of a fiscal foundation and is willing to assume more risk with their cash.

This presents a new opportunity for banks and credit unions who are willing to ignore some of the old rules of bank marketing and focus more on individual customer service. As other financial institutions have shown, it’s not difficult to customize banking products to meet customers'’ unique financial needs. Along with custom products there needs to be more education, and more acknowledgment of the unique needs of customers at different stages of their financial maturity.

There is more competition for deposits than ever before, and as that diverse group of Millennials financial needs change, so will their financial loyalties. It’s time to consider going back to old fashioned banking with more personalized service and more personalized products, so banks can continue to command customer loyalty by listening more closely and addressing their changing concerns and needs.

Rate Changes from the Top Four Banks

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Time for Banks to Consider Dynamic and Loyalty Pricing Models

by tom 23. February 2016 18:03

Dynamic pricing drives many commercial relationships in today’s market. The travel industry uses dynamic pricing for air fare and hotel accommodations based on demand, how far in advance purchases are made before travel, time of year, and other factors. Other markets offer loyalty discounts and dynamic rates based on competitive factors or ability to pay. Financial services, however, tends to adopt fixed rates for products and services so everyone gets the same deal. Maybe it’s time to reconsider that approach.

A recent guest article by Ghela Boskovich, Director, Global Strategic Business Development at Zafin,
and Pascal Bouvier, Venture Partner at Santander InnoVentures, published in The Financial Brand offers some interesting insights into how banks and credit unions could benefit from dynamic pricing. The idea is to consider the value of the customer relationship overall and promote value-related pricing to encourage customer loyalty as well as greater revenue. For example, loan products might be priced based on risk, mapping the borrower’s credit and other factors against cost of capital as it relates to current market rates. The variable is the bank’s margin. Rates offered by a bank or any alternative lender have some price flexibility, but regulatory oversight will limit elasticity, making it harder to offer dynamic loan rates even if your wanted to.

“Does this mean that dynamic pricing is an elusive holy grail for financial services incumbents? Not quite, especially if we introduce the added dynamic of client relationships. If our borrower from the above example also has a checking account, a savings account or an insurance policy with the bank, then dynamic pricing can be viewed along two vectors: a) relationship pricing and b) pricing execution.”

Consider what happens when you move from product pricing to relationship pricing. If you calculate the value of that customer over the lifetime of the relationship (customer lifetime value or CLV), taking into account the number and types of accounts they maintain, then you have a different equation. What you are doing is calculating the profitability of customer loyalty. The formula offered by the authors is:

CLV ($) = Margin ($) * (Retention Rate (%) ÷ [1 + Discount Rate (%)]) * Retention Rate (%)

The benefits for all concerned are obvious. This approach enhances customer loyalty, improves customer experience, promotes customer retention, improves cross sell, and generally increases share of wallet for the financial institution.

The challenge facing banks and credit unions is breaking down operational silos in order to serve the whole customer. If a customer wants to open a money market account or apply for a loan, the bank should be able to view the history of the relationship with that customer and assess a loyalty value that can be translated into concrete savings for the customer and profits for the bank. With the analytics capabilities available today any bank or credit union can develop a comprehensive customer profile, making it easy to develop customized, unique service offerings that meet every financial need.

Promoting lifetime value for the customer enhances the customer experience at the same time it makes individual depositors more valuable to the bank or credit union. The more flexible the relationship bundles, the more options the customer has and the more loyalty that customer has to the financial institution. Creating customized relationship bundles using dynamic pricing could be the wave of the future. It will be interesting to see how many financial institutions decide to catch the wave.

Rate Changes from the Top Four Banks

Deposit rates are on the move! Stay current with the latest rate changes from the four largest U.S. banks with our Top 4 Rate Move Alert. Simply sign up here and receive updates direct to your mailbox. There is no obligation, and no better way to stay current with rates in a changing market. Sign up today!

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New Products | Banking Trends

Using Technology to Power the “Cool” in Next-Generation Banking

by tom 8. January 2015 13:31

We have been writing about mobile banking and digital banking technology on a regular basis in this weblog. Technology is shaping the future of the banking industry, and technology-driven upstarts such as Apple Pay are having a dramatic impact on the way consumers think about their relationships with their banks and credit unions. One perspective on the future of digital banking was presented this week by Chris Skinner, author of Digital Bank, in a contributed an article on “Creating a Bank that’s Both Cool and Fair” for American Banker.

Skinner argues that for a 21st century bank to be “cool” it has to offer apps that simplify personal finance management, make it easy to authenticate users without account number and passwords, and reward customer loyalty in new and innovative ways. Many of these ideas jibe with what  the industry experts see for the coming year, so let’s take a closer look at some of these trends and the “cool” factor for tomorrow’s banks.

Convenience is a good place to start. What is driving online and mobile banking is the convenience factor for  consumers, and the simpler and more convenient banks can make transactions the better for their customers. Skinner predicts that banks will start using personal space and new technology, like voice prints, to authenticate customers. We are a long way from there, but simplifying authentication while improving security is clearly essential.

As smartphone technology evolves biometrics and other types of encryption and authentication will make mobile banking easier, and more secure. Banks also will get smarter about profiling their customers, and technologies like big data will not only play a role in developing new products and strategies, it also will help authenticate users based on known profile information about location, spending habits, and more. Mobile and online transactions will become simpler as security technologies and protocols improve until we get to the point where you can make a transaction with a finger swipe or a single click.  For the time being, bankers are going to continue to partner with payment partners like Apple to handle mobile transactions and promote mobile convenience.

Promoting the “cool” in next generation banking is going to be important for banks and credit unions to compete with prepaid cards and other types of emerging financial service offerings. Starting with the digital channel, rather than adapting conventional banking protocols to the digital world is one place to start. Innovative financial institutions are going to start with digital first and worry less about their brick-and-mortar business.

Skinner also suggests that cool banks will do a better job of treating their customers as human beings. This is going to require a cultural as well as a technological shift in many cases, but technology can bring financial institutions closer to their customers. Social media has already started to play a role in connecting customers to their banks. The challenge now is to personalize mobile and online banking, giving customers the assurance that their personal needs are being considered with custom product features and unique specials.

Loyalty programs are going to evolve with the aid of technology. Customers will be able to choose from new types of rewards that better suit their lifestyle, whether it’s cash back, special offers from retail partners, or donations to worthy causes. Personalized offers coupled with convenience are going to be the new cool.

So how do cool banks make their cash? With the recent economic downturn deposit rates aren’t generating revenue, and sources of fee revenue are coming under increased scrutiny. Maybe it’s time for banks and credit unions to rethink their customer approach. Rather than charging customers for services they don’t want, identify services they are willing to pay for and tie new revenue sources to convenience and value. Rather than relying on NSF revenue, for example, progressive financial institutions will work with customers to identify new convenience-based services that are worth a premium. They also will partner with retailers and others to offer deals on loans and credit card transactions, or to include a premium for convenience banking services. The revenue model for banks and credit unions will evolve into opt-in consumer fees and third-party revenue streams rather than forcing customers to pay to use their money.

What do you see as the key drivers for the “cool” banks of tomorrow? Where is technology going to have the greatest impact?

The Latest from ProductBuilder Alert

To help our bank and credit union clients stay up to date with new sources of revenue, Market Rates Insight maintains ProductBuilder as an ongoing database of new bank and credit union product ideas. You also can subscribe to our free weekly ProductBuilder Alert with the latest banking product ideas. Below is an excerpt from this week’s ProductBuilder Alert:


Customers Still Want Security and Personal Service of Branch Banking

by tom 4. December 2014 16:38

If you haven’t seen this particular study, a new report from Market Force Information confirms what many of you already may know – consumers still like to visit their bank branch. It seems that online or mobile banking isn’t going to displace demand for personalized banking services any time soon.

The research study polled 3,700 consumers and determined that high-touch in banking promotes customer loyalty. The study shows that 72 percent of customers visited a bank branch within 90 days. That numbers also reveal that 21 percent asked for advice from a banker and 27 percent contacted the call center.

As Forbes reports, Wells Fargo estimates that 80 percent of its retail customer transactions are made using self-service channels. That not only includes online transactions and mobile devices, but also ATMs and IVRs. The explanation:

“The banking industry, like the airlines, has done a pretty good job developing their self-service tools, in part because they’ve been working on it for a long time.”

Wells Fargo also estimates that the majority of customers visit a branch bank at least every six months. There are complex transactions that can’t be handled using self-service tools. And you can’t ask an ATM for financial or business advice.

Being able to offer friendly, personalized advice is critical to retail banking. The Market Force study also shows that of those who spoke with a banking advisor within 90 days, 57 percent said they would recommend that bank to others. Compare this to 47 percent of those who did not speak to an advisor.

Personalized service matters, and even if customers don’t use those services very often, the fact they can walk into a branch and talk to a banker offers peace of mind which in turn promotes customer loyalty.

The other factors that promote customer loyalty are financial stability, transparency, and ease of doing business. The Market Force study showed that Chase (51 percent) and U.S. Bank (49 percent) ranked highest among customer favorites when measured using a Composite Loyalty Score.

So while bank branches won’t disappear anytime soon, banks can learn a lot from retailers about promoting brand loyalty and building an omnichannel experience.  No matter what channel the customer uses to interact with the bank, the financial institution should offer the same positive experience. And as with retail sales, the lines between online and in-person interactions are blurring. It’s common for retail customers to order goods online for in-store pickup, or to return an item ordered online to a local store. As part of omnichannel banking the customer should be able to feel that same sense of fluidity and connection, such as researching and pre-qualifying for a mortgage or personal loan online and then consulting with a banker, who has access to the online information already filed.

Who knows, banks may even extend their customer loyalty programs, awarding loyalty points to longtime customers rather than saving the special deals solely to attract new deposits.

“I am Not A Number!”: Time Get to Get to Know Your Customers Better

by Tom 2. October 2014 15:46

Let’s face it, consumers have lost faith in the banking industry. After the exposure of Wall Street greed that led to the birth of the Occupy Movement and the recession of the past few years, consumers, especially Millenials, have become disenchanted with banks. One of their biggest complaints is that banks make no effort to get to know them as customers at the same time they are trying to build revenues by imposing more service fees.

Customers are Disenchanted

In an article posted by American Banker earlier this week, Derek Corcoran, Chief Experience Officer for Avoka, a global customer experience technology company, talks about the erosion of consumer trust:

“Consumer trust in banks took a big hit in the aftermath of the financial crisis, leading some people to shift away from traditional financial services. Meanwhile, some millennials are rejecting the banking sector altogether. Now a demographic that was once targeted by select financial institutions is being pursued by global powerhouses like American Express…”

Corcoran’s argument is that it’s time for the financial community to focus its attention on the younger generation and the underbanked or emerging financial service providers Like AmEx and Wal-Mart will capture those customers. These customers have no institution loyalty; a Scratch survey revealed that one-third of Millenials are willing to change financial institutions within 90 days, half are hoping start-ups change the banking industry, and 53 percent can’t tell their bank from the competition.

Smart banks are emulating the best practices of emerging competitors with mobile banking technology to attract younger customers and the underbanked. The FDIC reports that 32 percent of underbanked customers use mobile banking services as opposed to 22 percent of other bank customers.

Fees Make Foes

Part of the problem is how the banking industry makes its revenue. As noted in a recent post in The Financial Brand, the change in the economic climate has led to a much greater reliance on fee revenue. Consumers are starting to look at overdraft fees as punitive, yet they are the single largest source of fee revenue for banks and credit unions. The reliance on fees breeds mistrust in younger customer.

According to a 2013 Think Finance survey, 45 percent of Millennials are turning to prepaid cards and payday loans to avoid transaction and overdraft fees. By promoting distrust with increased fees, banks run the risk of a mass exodus when the FDIC starts to raise interest rates later this year. One bank predicts that they may lose 8 percent of their deposit base or more than $100 billion when depositors start shopping for higher interest rates.

Promoting Customer Intimacy Through Technology

To win the loyalty of these alienated customers before they abandon ship, banks and credit unions are going to have to find new ways to connect with customers. More aggressive mobile and social media strategies may help, but financial institutions need to work harder to establish a dialogue with customers to learn what they want, and to demonstrate to customers that their needs are being met.

Eric Levy, a financial services analyst for GFK Custom Research, envisions a new banking future where technology helps financial institutions get closer to their customers by anticipating their needs. Levy envisions a new in-branch experience where identifying the customer as he or she enters the branch and using what is known about that customer, it’s possible to provide that customer with a range of banking services and financial strategies unique to their needs.

What banks need to do is make a better effort of getting to know the needs and desires of Millennials and the underbanked and developing service strategies designed to be more appealing and rebuild trust in the bank institution.

Big data is playing an increasingly valuable role here. Using big data analytics, banks can develop a 360-degree portrait of their target customer, their habits, likes, dislikes, and financial needs, Using data stored in the bank’s CRM system combined with external data sources that reveal market trends, big data analytics can deliver real-time insight into each customer and his or her needs. Rather than adopting a relationship banking strategy that treats every customer the same way, big data makes it possible to personalize products and services, and increase bank revenue at the same time.

To remain competitive, banks and credit unions are going to have to get closer and more personal with their customers so superior customer service becomes a real differentiator.  Making customers feel special with products custom-designed for their financial needs will be the best way to revive relationship banking and to ensure the next generation of happy customers.

Building a Wireless Connection to Promote Customer Loyalty

by tom 14. November 2013 19:59

Increasing share of wallet hinges on increasing the perceived value of services for bank customers and credit unions members. Beyond providing a simple repository for their money, depositors are looking to financial institutions for assistance with money management, and mobile banking tools are a terrific way to engage with customers in a way that adds value and deepens the customer relationship.

In a recent blog post, bank marketing strategist Jim Marous wrote:

Beyond simple balance and transaction updates, alerts can provide the foundation for greater interaction with your customers, increasing engagement, lowering servicing costs and even providing potential revenue opportunities.

Mobile banks alerts have become an important component of money management. Smartphone-savvy consumers are relying on mobile alerts to provide instant feedback about their spending habits, alerting them to low balances and pending transactions. Customers expect banks to respond to them in real-time, just as they live the rest of their digital lives from moment to moment, which presents a new revenue opportunity for banks and credit unions.

As Jim notes, a Javelin Strategy and Research study indicates that only 34 percent of consumers currently receive bank alerts via email or text, and that number will only grow by about 4 percent through 2016. Javelin also indicatesFile:Android Smartphone with Money.jpg that text alerts are the fastest growing delivery channel, which shows consumers are looking for to supplement email with something more immediate. And more users are downloading mobile apps (about 50 percent) in addition to looking for push alerts. Clearly customers are looking for more from their mobile banking experience than alerts and balance verification.

Not surprisingly, the larger institutions are gaining more ground with mobile apps. Institutions like Bank of America and Chase are actively promoting mobile banking ,which helps instill greater consumer loyalty while promoting savings for the banks by reducing paper processes and branch visits. Community banks and credit unions are behind, and fewer offer the same level of mobile service or comprehensive mobile apps.

Which means there is more room for opportunity. Our research shows that a number of mobile alerts and services are valued by customers; that they want these services and are willing to pay for them. Identity theft alerts, for example, are in high demand with a growth potential of 70.8 percent. Low-balance alerts have a growth potential of 55.7 percent. Mobile photo bill pay could grow 48.8 percent. And mobile deposit services 46.0 percent. And each service is valued at an average of $3.30 and up, or when bundled in the right way, consumers indicate they are willing to pay $10 or more for these mobile services.

This is where the smaller institutions have an opportunity to compete more effectively. By offering the right mobile services in the right bundles, banks and credit unions can better serve their customers with tools that help them manage their money. At the same time, these services deepen the customer relationship and promote customer loyalty. And consumers are willing to pay for these services for added revenue.

Mobile banking services are growing in popularity and importance, and the institutions that figure out how to connect with customers with better mobile services are the ones who will be able to compete more effectively.

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Market Research | Mobile Banking | Banking Trends

Consumers Want High Touch, Not Just High Tech

by tom 19. September 2013 20:52

Most bankers assume that consumers want convenience above all else. The latest convenience services like mobile banking, reloadable debit cards, and online transactions – all services driven by technology – will appeal to the new generation of banking customers.

They’re right, but that’s not the whole story.

According to a new study by Simon Associates profiled in , consumers want advice as well as convenience, and the banks or credit unions that can provide quality customer service along with tech-powered convenience are the ones who will get their business:

Simon Associates recently conducted ethnographic research with both consumers and banking executives. We found that consumers don’t necessarily want high tech solutions in isolation; just as important, they want support, advice, and more knowledgeable people speaking to them than they currently experience in their banking interactions.

Meanwhile, our colleague Carmen Effron from C.F. Effron worked with bankers at various wealth management divisions. They all assumed that the “high tech” without the “touch” would work great.File:An Indian call center.jpg

Clearly there is a disconnect here. As banks and credit unions continue the pursuit for profit, they continue to automate processes and the human touch becomes farther removed from the process. When bank customers call customer service, for example, they have to go through multiple layers of electronic menus, punching in account numbers and security codes, before they can get to a real person. Granted, the electronic gatekeeper saves the cost of having service representatives answer every incoming call, but how many incoming calls get routed to a service rep anyway? And how much value would customers place on having a human answer the phone and ask, “How can I help you?”

At the end of the day, what customers really want is advice and help, along with convenience. As one of the individuals surveyed notes:

“I’m fed up with the inability of [bank] staff to answer questions, or the many times I have to tell them my name and account information all over again. Privacy is important, but perhaps it can be combined with someone who knows your name and appreciates your business.”

Banking is still a people-to-people business, and along with the technology, people still want to interact with people to solve their problems. Granted, emerging financial services like mobile deposit and identity theft protection are of value to consumers, but in the age of social media, the new generation of bank customers are used to interacting with real people, either by telephone or online. Those institutions that will acquire new customers will have to find a way to inject the personal touch back into convenience banking and put real service back into customers service.

M&A Could Spell Opportunity for Regional Bank Competitors

by tom 4. February 2011 14:54

0309-merger_full_600A recent article in American Banker magazine entitled, “Stealing customers. Poaching deposits. It's all on the table when M&A disrupts a marketplace,” offered some interesting statistics about the shift in deposits when a bank is acquired. We have seen a lot of M&A activity in the banking community as troubled institutions are being gobbled up by their healthier competitors, and the result has created some new opportunities for smaller, healthier, regional banks. As one source in the article states:

"When there's a strong local competitor like a WSFS and out-of-market large banks come in out of acquisition, those local banks I believe do stand to benefit and pick up customers that are either not wanting to bank with an out-of-state bank competitor or just experience some turmoil related to the integration effort," said Mary Beth Sullivan, a partner in the Capital Performance Group consulting firm. "It always has created opportunities," she said, "and it will continue to do that. But my sense is, the best opportunity is on the business banking side of the equation when that happens."

The article cites a number of examples where, following an acquisition, they acquired bank actually increased its deposits. For example, when New York Community Bancorp acquired AmTrust in Cleveland, the New York Community executives were conservatively estimating a loss of 15 percent of $8 billion in deposits would likely follow. Instead, AmTrust’s deposits grew by nearly $200 million in the first quarter. This could be because AmTrust kept its name and the fallout from the merger was fast, and AmTrust stopped its layoffs and started hiring right away. Hence a perceived turnaround for an established local brand.

An interesting observation about this example is that depositors tend to leave a struggling bank at the first sign of trouble. By the time AmTrust was acquired by New York Community, only the most loyal customers were still banking with AmTrust.

The article also tells a David-and-Goliath story of how FirstMerit Corporation of Akron was able to attract depositors from Cleveland competitor National City after the latter was acquired by PNC Financial Services Group. FirstMerit was a healthier bank with fewer problem home builder loans, and was able to attract depositors with new special offers, such as a new checking account with one free overdraft per year and free return of canceled checks. FirstMerit was able to increase its core deposits by $1.34 billion in the first year following National City’s acquisition, and it moved into number 7 in deposit market share as of June 2010.

“Ali Raza, an executive vice president at Speer & Associates, a financial services consulting firm in Atlanta, said he has seen acquisitions play out in two ways in his local market. ‘When a new bank comes in to town, there is some opportunity for consumers to look at a new alternative," he said. "At the same time, there is some defensive play and an opportunity created by a longtime hometown bank to assert itself as a player that has been there for a long time and differentiate itself, 'We know the market better than the newcomer' sort of thing.’”

Whether consumers switch banks or not is really a matter of convenience. If there are enough local branches and ATMs then they will consider an alternative when their bank goes through a transition. Offering innovative products and aggressive deposit rates to attract their attention helps as well.

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