Online Deposit Gathering

By Ned Elton, Managing Partner, Financial Services

Consumer deposits acquired and retained via online banking offerings more than doubled in size over the past four years. This growth was driven by the maturation and penetration of internet banking, an increasing consumer desire for higher yields on the cash portion of their wealth, and financial institutions' need to develop sustainable and scalable sources of cash.

Online deposit growth flattened in 2008 as rates and marketing efforts by key FIs declined. However, the recent upheaval in the marketplace is driving further interest in higher yielding cash accounts among both consumers and FIs. Rosetta expects the category to expand significantly in 2009 as existing and new entrants compete aggressively with marketing spend and rate.

Raising the Stakes in Online Deposit Gathering:

During 2004 and 2008 financial services companies proved that deposits can be gathered online but, achieving deposit goals profitably remains a challenge for many. The rules of the online game require entrants to create an efficient operating model that reflects best practices developed by the category leaders (e.g. ING Direct, HSBC Direct).

In order to successfully navigate the risks inherent in this business model, new entrants will be well served to create an offering based on three cornerstones that drive efficiency and effectiveness:

1. Build the proposition to meet the needs of target consumers whose beliefs drive profitable behaviors
2. Create a data driven marketing 'engine' that continually optimizes ROI
3. Construct an online experience and technical architecture that enhances customer satisfaction while maintaining cost efficiencies

Online Deposit Gathering Explodes:

Historical deposit trends enabled existing players and new entrants to achieve growth by taking advantage of strong overall category growth, but recent deposit trends suggest new entrants must achieve growth by more effectively competing against the existing competitive set to grab share.

Source: SNL Financial

Online deposits defined as those held by "Cyber Branches" as classified by the FDIC. Cyber branches are websites where customers can open and manage accounts electronically.

Snapshot: Not Everyone Wins When the Going Gets Tough:

The category leader ING Direct was able to sustain growth during late 2007 and into 2008 despite overall category flattening. ING Direct's investment in brand marketing, the cohesiveness of their overall value proposition, and their superior customer experience enables them to gain better than fair share of the category despite consistently offering lower rates.

The New "Rules of the Game" for Online Deposit Gathering:

The economic 'rules of the game' differ when gathering deposits online versus traditional retail channels and product offerings.

Keys to Success in Online Deposit Gathering:

Cornerstone #1:

Build the proposition to meet the needs of target consumers whose beliefs drive profitable behaviors

• Identify the consumer target based on a quantitative understanding of the beliefs that drive profitability, interest in the category and affinity for your specific proposition
• Align marketing plans, customer experience and the business system to optimize around the identified target
• Deploy, evaluate and optimize marketing efforts based on identified target KPIs
• Build cross-sell strategies and products based on needs of the identified target

Cornerstone #2:

Create a data driven marketing 'engine' that continually optimizes ROI

• Apply direct marketing and eMarketing principles rather than traditional FI 'campaign planning' approach
• Build a 'marketing engine' that collects data to make ongoing (if not real-time) optimization decisions
• Design and personalize key elements of the marketing mix (product,rate, promotions and targeting) around a profitable target as inputs to the marketing engine
• Create a test and learn approach focused on continual optimization

Cornerstone #3:

Construct an online experience and technical architecture that enhances customer satisfaction while maintaining cost efficiencies

• Design based on consumer insight and integrated usability testing to create a rich and engaging web experience
• Analysis and redesign of call center and customer management processes to fit experience
• Design a highly scalable technical platform to enable rapid changes to volume that reflect the impact of the marketing engine or general market conditions

Contact: Ned Elton, Managing Partner, Financial Services
ned.elton@rosetta.com
646.502.3100

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