With COVID-19 forcing deposits up and lending down for banks and credit unions, financial institutions will have to anticipate the path ahead.
In the midst of the coronavirus pandemic, backed by a wait-and-see approach, shifting employment scenarios, and a bevy of much-needed government stimulus checks, Americans spent less and saved more. At the same time, banks and credit unions were able to sit back as deposits skyrocketed, but remained cautious about extending loans. Now, the economic picture of what was and what may be is becoming more clear. Despite the economy taking hit after hit in 2020, a recovery looks like it might be on the horizon. With all of that liquidity, many banks and credit unions will look to get back into the full swing of fundamental financial offers like lending — but they’ll need to target the right customers to get things back to normal.
General skepticism about an economic turnaround and fears of default means lending has been at a stand-still. Throughout last year, financial institutions tightened lending standards across residential real estate, auto loans, credit card loans, and consumer loan categories in general. In fact, total loans and leases dropped to 62.8 percent of bank deposits in the first two weeks of March 2021; according to the Fed, total assets at U.S. banks climbed 0.7 percent to $21 trillion, yet loans and leases dropped to the lowest data points since 1973.
The main factor behind this hesitancy was a potential borrower’s level of financial hardship. Economic instability, lockdowns, and limited spending options are a particularly potent combination to tip the balance against loan growth and deposits that increase revenue for banks and credit unions. But after 14 months of pandemic-related restrictions, the factors that drove that imbalance are beginning to wane.
COVID vaccinations have rapidly increased — 105 million people, or 31.8 percent of the total U.S. population, have been fully vaccinated as of this writing — meaning herd immunity could bring about a sense of normalcy this summer faster than previously expected. Restrictions have been gradually lifted at the state level, allowing economies to reopen, so consumer confidence and eagerness to spend those deposits are ramping up to boost sales. The 1.9 trillion-dollar“American Rescue Plan” passed in March is also a hopefully final spark meant to foster government and consumer spending with a round of robust stimulus and aid payments.
So, what does it all mean for financial marketers? They need to prepare for customers and members to come back strong.
Pinpointing The Demand
The indicators point to a turnaround, but if 2020 taught us anything it’s to expect the unexpected. For banks and credit unions, the quality of eligible and qualified borrowers might not match the demand once things get back to normal. However, if we take potential recovery and growth at a steady but gradual level, financial institutions will have to anticipate the path ahead. Not only will they have to create a competitive[amsive_tooltip term=”direct-competition”] advantage to motivate consumers back into the mix, but also target the right consumers.
Here’s what marketers can do to prepare:
- Redefine the Audience: The first and perhaps most important step is to establish the target audience of members and customers that are more apt to drive deposits, get more loans on the books, and ultimately increase revenue.
- Get Your Data in Order: Making smart marketing decisions means granting teams access to relevant customer data. Make sure to evaluate first-party data[amsive_tooltip term=”first-party-data”] and enrich that information if needed to fill gaps. Augmenting the current data with refreshed insights will strengthen the overall audience strategy[amsive_tooltip term=”audience-strategy”].
- Investigate New Channels: What’s worked in the past may not work in the future. Employing insights across different intent paths means staying relevant at every stage of the customer journey[amsive_tooltip term=”customer-journey”].
- Reevaluate Your Competitive Set: Brands may not have access to borrower expectations and visibility into what competitors are doing, but this is vital in impacting bottom-line success.
The increase in deposits throughout 2020 and the first half of 2021 created a scenario where excess liquidity piled up while loan demand simply stunted. With the new normal coming into view, financial marketers will have to rethink how to acquire consumers that align with the quality and value of target markets to grow lending and deposit products for their institutions.