Banks today are facing a perfect storm: competition from non-traditional players, rising deposit costs, and an aging clientele. This squeeze on profitability demands a strategic shift to capture a larger share of business deposits.
Customers are increasingly comfortable using non-bank financial institutions, forcing banks to adapt. The traditional model of relying solely on interest margins is under pressure, with lower policy rates impacting earnings. To compensate, banks need to prioritize non-interest income sources like fees for financial services.
But how can banks attract and retain customers in this new environment? The answer lies in a delicate balance: providing cutting-edge digital tools while maintaining the personalized service that businesses value. Customers want real-time access to financial data and user-friendly tools, but they also crave expert advice and a human touch.
Small and medium-sized businesses (SMBs) represent a massive untapped opportunity. While these businesses often seek financial guidance from banks, many are frustrated by outdated technology and a lack of digital offerings. This is particularly concerning as many current business owners are nearing retirement, and their tech-savvy successors will expect a different banking experience.
The key to success is leveraging data. By partnering with FinTech companies, banks can gain valuable insights into customer needs and tailor solutions accordingly. This data can also strengthen customer relationships by enabling banks to provide targeted financial support and relevant financial products.
In short, banks must embrace digital transformation and cater to the evolving needs of a tech-driven generation. The future of business deposits hinges on the ability to offer a seamless blend of personalized service and cutting-edge digital tools.
Key Strategies for Banks to Enhance Business Deposits
Understanding market dynamics, tailoring product offerings, building strong client relationships, leveraging digital transformation, and optimizing risk management are crucial strategies for banks. By implementing these tactics, banks can enhance liquidity, profitability, and competitiveness, ultimately driving sustainable growth in business deposits.
Addressing Competitive Dynamics
The financial landscape is shifting rapidly, with traditional and new rivals challenging banks more intensely. As more customers become open to non-financial institutions, banks need to reassess their approach to deposits, especially considering the combination of higher deposit costs, lower policy rates, and constrained loan potential affecting net interest margin (NIM) in 2024.
Prioritizing Non-Interest Income
To compensate for the shortfall in net interest income, banks should focus on non-interest income. Regular conversations with financial institutions reveal three primary goals: capturing and retaining sticky deposits, boosting non-interest income, and competing with fintechs and neobanks. Evaluating the true cost and longevity of new deposits is essential, as many solutions promising growth may not offer lasting results.
Types of Innovative Solutions
- External Solutions: Integrate banking services into financial platforms to create embedded banking experiences. However, this approach comes with regulatory scrutiny and compliance challenges.
- Partner Fintechs: Collaborate with fintechs like Finli to provide digital tools that support customers while minimizing regulatory risks. Finli enables banks to offer comprehensive digital-first experiences, meeting evolving customer expectations without outsourcing core operations.
Finli
After my extensive experience in banking as a Certified Treasury Professional, responsible for growing core business deposits and increasing non-interest income for banks, I have realized the critical role bankers play in supporting small and mid-sized businesses in every community. However, to effectively compete against neobanks and fintechs, we need more than just a friendly smile and strong relationships. We need advanced tools and resources to enhance our capabilities. The key to attracting and retaining business customers lies in asking, “What’s keeping you up at night?” and being ready to provide tailored solutions to address those challenges.
Finli helps banks attract new business clients, deepen existing relationships, and improve their digital experience. By partnering with Finli, banks can:
- Capture and Retain Sticky Deposits: Offer a streamlined solution that replaces the need for multiple digital tools, ensuring business customers remain loyal.
- Boost Non-Interest Income: Provide value-added services like invoicing, customer management, and inventory management, creating additional revenue streams.
- Compete with Fintechs and Neobanks: Deliver competitive digital experiences without significant investments in engineering talent.
Enhancing Bankers’ Capabilities with Real-Time Data
Finli bridges the data gap by providing real-time insights into customers’ financial health. Bankers receive valuable data on invoicing volume, transaction quality, and more, enabling informed decisions on revenue-based financing and cross-selling opportunities.
Finli empowers banks to compete against megabanks and neobanks by providing innovative digital tools and solutions. By partnering with Finli, banks can attract, acquire, and retain valuable business clients, enhance their digital experience, and develop a robust non-interest income strategy, ensuring sustainable growth and profitability.
