By Ray Birch
MILWAUKEE, Wis.—As rates shift, relationship pricing will be a key to retaining core deposits, according to Raddon, a Fiserv company.
“With deposit management and deposit pricing, we probably need to revisit the whole aspect of relationship pricing,” said Raddon SVP of Research Bill Handel. “And the industry has moved quite a bit away from that notion.”
Handel said it’s clear why many credit unions have not been focused on relationship pricing to keep checking business, because for many years rates have been rock bottom.
“When rates are basically zero, you don't pay a whole lot of attention to deposit pricing. Strategically, our view of deposits in a low-rate environment is that they are essentially raw material for lending,” he said.
Despite rates heading back down, credit unions will not see a return of the super-low rates, Handel said.
“They're coming down, but they're not going to go back down to zero. We’re seeing a steepening of the yield curve which will keep longer rates relatively high even as the Fed continues to lower the Fed Funds rate,” he said.
Bill Handel
No Rock-Bottom Rates
With rates having risen from rock bottom, Handel said it now makes more sense to consider effective relationship pricing—particularly with checking accounts at the center of that relationship.
“Checking accounts are more important now, not less important. Why? Because of the data we can glean from checking transactions,” Handel said. “The transactional data in all those ACH strings is so powerful in terms of understanding what members’ needs actually are. You can understand opportunities. With active checking accounts you can see the loan payments members are making elsewhere. You can see the credit card payments they're making to other financial institutions. You can see all that kind of information and it helps you refine your marketing.”
Credit unions need to be leveraging data more than they are today, asserted Handel.
“That's why the checking account becomes a really critical piece of the equation, even though it's likely to be less profitable,” he said. “We know the challenges around NSF. That's something that's going to continue to be a challenge for the industry—the profitability of checking accounts.”
But the ability to utilize checking data to build new relationships with members more than pays for smaller checking profits and even losses that may come from share drafts.
Handel said credit unions should not have to keep checking rates high to keep core deposits.
“We don't believe you really have to pay up. However, we do think you have to be very good from a technology standpoint, so members don't feel they are at a deficit in terms of your mobile banking solution and other digital services attached to checking. The key piece to this is access to the account. It has to be considered a relevant product,” Handel said.
Handel said Raddon has seen a growing trend towards subscription checking—bundling different services and offers together for a monthly fee.
“What’s most important is just to have the checking account as a solid product offering and relationship price it, without fees, and make it easily accessible and relevant,” Handel said.