A deposit profitability mystery…
…The biggest mystery in your bank has to do with big balance accounts that fail to meet your profit targets. In my “Four Ds” segmentation of profits (vertical) vs balances (horizontal) this is Quadrant 2 (Q2).
Q2 accounts should be profitable. Those big balances should result in big profits. But they don’t. And there are usually 2 explanations:
- Bank staff sees those big balances and rushes to offer fee waivers and price concessions. That’s right; we make them unprofitable ourselves with self-inflicted profit leaks. This happens more frequently than you think especially when balances are all you have to evaluate. No one wants to be the reason you lose the account so they err on the side of generosity lavishing freebies on the account.
- Your customer works hard to keep you from earning a profit. He is a shrewd businessman. That’s how he got those big balances and he’s going to do his best to keep them. He knows a good deal when he sees one and he’s willing to push a little bit to get one. Usually he’s dumping excessive transactions on you.
In both cases you need to go to your core system and read the instrument specific tea leaves. See who’s unprofitable and learn why. Then you can fix it without upsetting the apple cart.