The Pending Battle for Small Business Deposits

After being flush over the past couple years, US banks are refocusing on old-fashioned deposit gathering.  Monit’s insights offer banks a smarter way to raise in a tougher environment.

Catalyzed by a pandemic that disrupted the lives of many Americans, US Commercial Banks saw their total deposits grow by 34.5% from January 2020 through January 2023, the highest growth rate over the past 30 years.  Fueled by large line of credit draw downs at the pandemic’s onset, bolstered by government stimulus programs, and reinforced by increased consumer savings rates, US banks saw unprecedented inflows of new deposits. Banks were able to build strong capital bases with lower costs of funds during the turbulent economic times.  Government programs like the Payroll Protection Program, the CARES Act, and the American Rescue Plan provided a lifeline to many small businesses who kept higher cash balances at US Banks.

As the economy continues to recover from the depths of the pandemic, new headwinds have emerged.  Higher inflation is now being combated by the government through aggressive rate hikes, the expiration of stimulus programs, and targeted spending programs.   

While the banking industry enjoyed a brief honeymoon with increased lending rates and lower funding costs, companies and consumers are starting to shift behaviors.  Total bank deposits have now decreased by 1.9% since their peak in April 2022.  Subsequently, as banks’ loan books have continued to grow, they are increasingly focusing on sustainable and stable funding sources.  

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The importance of small business deposits

As executives refocus their organizations on deposit gathering, small businesses are one of the most attractive sources to banks:

1. Massive source of deposits, with $1.5T held at US Banks 
2. Operating accounts, with their stable source of cash flows, are some of the most reliable and lowest cost sources for banks
3. Small business deposit accounts allow for easy expansion into auxiliary fee-generating products or cross-sell into lending solutions
4. Regulators place high value on small business deposits, particularly for large banks that are required to undertake stress testing exercises

Correspondingly, competition will be fierce, particularly as the government continues to tighten monetary policy, credit standards tighten, and interest rates remain high.  While many banking executives are undoubtedly dusting off their deposit gathering playbooks, they might find that the game has changed since it was last in vogue.  First off, the pandemic accelerated the evolution of customer behaviors and preferences towards more digital engagement.  Business owners increasingly adopted new digital services (e.g., online accounting, digital payroll, online payments, etc.) and shifted how they  manage their finances.  Further, owners updated how they shopped for these services, relying more on online searches vs. visiting branches in person.  Secondly, new digital offerings provided owners with more streamlined onboarding, faster fulfillment, and easy money movement that shifted how business owners move and store money.  Related, vendors like Square and Stripe have actively disintermediated traditional inbound payments away from historical bank partners.  With declines in foot traffic, bankers are forced to rely more upon outbound “howdy doody” sales calls to clients and prospects.  These can be highly inefficient and not always appreciated by the overstretched business owner. 
 So, what should bankers do to win deposits in this new environment?  As small businesses continue to shift their expectations from their partners, banks need to step up their game to engage intelligently – and avoid competing strictly on deposit pricing.  Banking leaders should ask themselves several questions as their deposit sales strategies are developed:

• Do you accurately know which financial services companies we are competing against to win deposits?
• Do we know which segments are particularly deposit-rich?
• Do we understand our deposit share of wallet with individual clients? 
• Are our bankers properly incentivized to encourage deposit gathering behaviors?
• How well does our online business banking services situate us to be the “primary operating account?”
• Is there a clear strategy for recommending or offering additional products that can help protect and grow deposits?

‍Monit provides banks with invaluable features that improve their ability for timely and precise targeting of deposit opportunities with their clients.Bankers receive Share of Wallet insights into:

1. Which competitors are competing against the bank for deposits
2. Which SMBs hold significant deposits at other financial institutions
3. Which industry segments are particularly deposit-rich for the bank

Precise and timely Deposits and Treasury Product Campaigns targeting SMBs based on their financial needs: 

1. Fast multi-channel campaign development targeting deposit opportunities
2. Identification of clients that may benefit from merchant services or receivables solutions to increase inbound deposit flows
3. Offer account analysis solutions to SMB owners to encourage consolidation of deposits held-away

‍Increase engagement with the bank’s online channels features highly-valued by SMB owners to retain the “operating view” position  

1. Seamless cashflow forecasting to track and optimize cash on hand
2. Predictive insights to improve receivables management
3. Competitive benchmarking to help owners get a sense of performance vs. peers

Unlike other options to grow deposits, banks can quickly implement Monit’s solutions for business owners and the bankers that serve them.  Please reach out to learn more on how we support business bankers engage with their clients through insights and advice.ContactMax Koenig, VP of Sales, Max@monitapp.ioRyan Johnson, Chief Customer Officer, Ryan@monitapp.io