In today’s financial landscape, many depositors have accounts at multiple financial institutions, and many are using banking apps like Chime or Opportun. This leaves community banks in competition not only with other banks, but also with digital financial institutions. The fintech explosion has made it easier than ever for consumers to open accounts and spread their deposits, which in turn makes it more difficult for institutions to determine whether they hold primacy with a given customer.
What is Bank Primacy?
Bank primacy refers to the institution a depositor relies on most. This may include where they pay bills, seek financial advice or credit, or conduct everyday spending. For community banks, securing primacy is essential to remain competitive and continue reinvesting in the neighborhoods they serve. These institutions depend on strong, long-term relationships to function effectively.
Primary relationships matter to banks because:
- They hold 10x more deposits.
- They generate 8x more fee revenue.
- They stay with institutions for 8 years on average.
- They are less rate sensitive.
What Depositors Want
Many depositors now hold multiple checking accounts for different purposes, rather than switching banks outright. Also, with so many options, depositors are in a position of power. The growing number of digital platforms and physical bank branches means they can choose the institution with the best offers, features, or alignment with personal values. This market condition means depositors have more work to do when it comes to determining where to bank. More than ever, depositors are turning to fintech solutions or online banks because they are:
- Convenient – offering multiple services in one app
- Flexible – accessible anywhere via mobile
- Quicker – some provide early access to funds compared to traditional banks
The behavior of depositors is our specialty, and it’s evolving. According to our 2024 Depositors Survey:
- Deposit safety is top of mind: 7 in 10 depositors have changed their deposit behavior because of safety concerns.
- Assurance of liquidity matters: 43% of depositors surveyed cite this as a key concern for them when they think about banking practices in the future.
- Values matter: 88% of financial services professionals agree that demand for values-based banking products has increased in recent years, with 9 in 10 depositors stating they are willing to give up a portion of their return if their financial institution can guarantee deposit safety while being values aligned.
Next Steps for Community Banks
Community Banks can take some actions to gain more depositors and have a better chance at primacy. Some options include:
- Employee participation: Everyone at a community bank is responsible for growing deposits. By utilizing employees’ local relationships, banks can encourage businesses and institutions to choose them as their primary financial partner.
- Stronger technology: Community banks could improve their technology by hiring well-qualified technology experts or contracting out to qualified vendors to ensure they are using the most up to date technology.
- Maintaining good relationships: When thinking about broadening the relationship with current depositors, community banks should focus on a customer-centric approach to keep relationships and maintain primacy.
Banks with sign-up offers promising a certain cash deposit are not convincing enough anymore. For a bank to succeed in winning and keeping primacy, they must listen and look at today’s consumer behaviors to be more profitable and resilient. They need to start treating primacy as a long-term, evolving relationship and not a one-time win.
