Retail banks are experiencing a major systemic shift. Technology, regulations, shifting demographics, and emerging Fintech competitors are changing the banking landscape faster than we thought possible. Retail deposits have always been core to the growth and profitability of banks. For the longest time, the competition over deposit growth was fought at the branch level. Today, we are witnessing a significant shift in approach and tactics with some clear winners and losers emerging.
On the competitive front, we have seen both encroachments as well as partnering with Fintechs, acquisitions, and the launching of mobile-only banks. On the regulatory front, the US Federal Reserve has raised interest rates five times in the last three years which was a major departure from the near zero interest rate environment the US had been operating in since the recovery began in 2008. At the same time, advancing technology is driving change in consumer behavior and the nature of competition among banks. Consumer behavior is changing with ubiquitous mobile connectivity and is shifting how they interact with channels of interaction with banks. Fintechs bring new competition with the unbundling traditional business model of banks. The low cost of operations enabled by cloud combined with the marginal cost of acquiring new digital-only customers is causing many banks to rethink their growth strategy. Lastly, the rise of bitcoin and other cryptocurrencies effectively challenge the traditional concepts of the stored value of money or deposits.
In response to these challenges, traditional banks have deployed several strategies, including acquisitions to bulk up deposits, branch rationalization and modernization, investments in their mobile and digital capabilities, and a focus on mobile only customers.
In this paper, we take a detailed look at the market to identify patterns around which banks are winning the battle for deposits. We examined large national banks, super-regional banks, and regional banks to determine the correlation between overall performance and deposit base. We also examined the extent to which investments in digital and mobile technologies make banks more efficient and profitable.