Account balances: Bigger is NOT always better…
…That is, account balances don’t predict profitability. In a perfect world they might, but our banking environment is far from perfect.
We sure plan (and hope) for bigger balances to translate into more profits, but then reality intrudes.
Maybe that new commercial account with big balances requires excessively frequent transactions. Or maybe they need us to allow their nonbanking employees to cash “on us” payroll checks in the branch for free.
Or maybe we get in our own way by seeing that big balance and rushing to offer concessions and waivers without really understanding the profit implications.
One day you look up and see that those great big balances aren’t really worth the time, effort and expense associated with their transactions and delivery channel usage.
But how would you know?
How would you know if they were profitable? How would you know if those concessions were worth it?
How would you know exactly how to treat any account? That’s the real question, isn’t it?
The answer is deceptively simple…
…You calculate their #DepositProfitability and you segment customers based on both balances and their actual profitability.
Treating customers based on their actual behavior is the gold standard.