Teaser rate campaigns have become commonplace for acquiring and cross-selling client deposit and investment balances but most banks we talk with struggle to know whether they are really delivering the value that was hoped for.
The most common questions we hear are:
Are we bringing in new money or cannibalizing our existing base?
Does the money stay in the bank when the campaign ends?
Knowing the splits between new money and product substitution is critical to understanding the return on investment of any teaser rate campaign. Balance growth from the campaign will inevitably include significant amounts of product substitution – in fact even without a teaser rate offer a third of account balance growth in a US regional bank’s demand, term and mutual fund deposits is actually funded by internal substitution. Under a teaser rate scenario, the substitution effect is significantly amplified.
To understand the real value of a teaser campaign you need to deduct the profitability margin you were earning on the “old money” from the margin you are getting on the campaign target funds. To do that you need to know which products the old money was coming from so you can attach the right margin to each source of old money. To do that you need to be able to measure the flow of funds between all the accounts in your portfolio, which is where the challenge lies.
Similarly, once the campaign teaser rate period is over there is typically some run-off in the deposit funds in the target product. To the extent that the product level runoff stays within the bank the campaign results can include the margin of the successor product as part of the value added. Again the key is isolating where the money flows to within the bank – and knowing how much actually leaves after the expiry of the teaser incentives.
Both of these issues are solved by measuring the flow of funds into, out of and among products in your portfolios and there are two ways to achieve this. The first approach is to analyze the transaction details of every deposit that occurs in the campaign target product. Transaction analysis is impractical due to both the cost and complexity of trying to trace flows through the systems of the bank. Most money flows from one product to another by passing through a demand deposit or suspense account which makes tracing transaction flows extremely difficult.
The second way is through a patented analytical technique that enables banks to measure flows of funds into, out of and across the bank product portfolios at the account level without having to dig through transactions or make high level assumptions that produce doubtful results. If you want to understand if your teaser rate campaigns are really working, please talk to us about how our FlowTracker solution can enable you to truly understand and measure money in motion at your bank.
