How Engagement Banking Helps Banks Drive Business Deposits

In conversation with Nick Reid

Banks are focusing on retaining and acquiring deposits and preventing deposit leakage, particularly within the small business sector. How can this be done?

Q: When it comes to deposit growth, what are banks focused on most?

There are three main areas banks are increasingly focused on:

1. Making existing business deposits more 'sticky' to prevent deposit leakage.

2. Gain greater wallet share of business deposits by establishing relationship primacy.

3. Acquiring new customers and their deposits.

Q: How can banks effectively retain and acquire business deposits?

One of the key strategies is to provide services that offer tangible benefits to businesses, creating a value exchange. When businesses feel that their needs are being met, they are more likely to regard the bank providing the service as their primary relationship, and turn to them for their next financial product or give them greater wallet share.

Technology is a crucial part of this, but businesses are not looking for a digital-only relationship. A combination of digital and human interaction with businesses, especially for the small business segment which is not relationship-managed, is becoming known amongst some players in the industry as 'Engagement Banking.'

Q: How can Open Finance help banks with business deposit growth?

The more data banks have on businesses, the greater the potential to acquire deposits and drive other revenues. In return for creating valuable cash management and forecasting tools which give businesses a 360 degree or 'horizontal' view of their finances, businesses are more likely to grant their bank consensual access to sources of data beyond what resides in the core banking platform. This includes Open Banking and other open sources such as accounting and tax data.

This data is invaluable because it not only helps banks gain a deeper understanding of business customers, but also allows them to identify opportunities to contextually nudge or prompt them to consider more of their financial products or services, for instance, making it easy for businesses to bring deposits in from externally held accounts without having to leave the digital banking channel. Pay by Bank and Variable Recurring Payments for 'me-to-me' payments, when embedded in business workflows, present real deposit acquisition opportunities.

Another interesting example is using data to identify and convert 'hidden' business customers, especially price sensitive sole traders who trade from Personal Current Accounts. According to the FCA, when you factor in product fees, overdraft charges and most importantly the funding benefit to banks, business deposits are up to five times more valuable than retail deposits.

Q: What does recent research suggest about the potential for banks to increase business deposits through better utilisation of end-user data?

There’s some compelling research from Unity Trust Bank that highlights this potential. It suggests that around £2.29 billion worth of deposits are currently tied up in current accounts and ISAs, which could be better utilised in savings accounts.

The downstream benefits of redirecting these deposits could be substantial for businesses, equivalent to employing an additional 58,000 people at the UK average income of £35,000 per year.

Q: How can banks take advantage of the benefits derived from Open Finance?

Banks can leverage the upstream benefits that come from using data obtained through Open Finance in several ways:

Better understanding your Business customers – use data to shape your propositional business banking strategy.
Opportunities to cross-sell other financial products – Using the data to identify which products might benefit each Business.
Opportunities to increase lending – Offering loans or credit options that are contextual and aligned to the business' situation.

All these strategies can help drive and retain deposits for banks while also strengthening relationship primacy with businesses.