Pricing to Influence Customer Behavior
The DCG advisory consulting team starts every week with an internal discussion of market trends, regulatory developments, and the real experiences of our bank and credit union clients. Here are the notes from this week’s Monday Morning Meeting.
Check out the meeting notes from previous weeks.
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For many institutions, recent deposit pricing strategy has been dominated by CD specials. Banks and credit unions need funding, customers want yield, and short-term promotional CDs became an effective way to compete. The market and yield curve are vastly different than when short-term CD specials began dominating retail deposit strategies.
This week's discussion started with the following question: Can/should banks and credit unions use deposit pricing to influence customer behavior rather than simply reacting to it?
Some institutions are beginning to reshape (normalize) their CD curves, reducing shorter-term promotional rates while making 18- and 24-month terms more attractive. Early data suggests customers may be responding.
DCG consultants are encouraging clients to use this environment to experiment intelligently. Rather than increasing rates on products where significant balances already reside, institutions can test pricing on lower-volume terms and measure whether customers will trade some liquidity for yield. That creates valuable information about customer behavior without unnecessarily repricing the entire deposit base.
There may also be an opportunity to rethink the traditional choice between a CD and a money market account. For certain customers, a slightly lower rate combined with immediate liquidity may be more valuable than maximizing yield through a short-term CD.
The institutions that use pricing to test behavior, extend funding where appropriate, deepen existing relationships, and gather better information about their customers may find that the value of a deposit strategy extends well beyond the rate being offered.
What are others seeing?
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