Deposit accounts are like snowflakes…
…Each one is unique.
So why are we treating them like they are all the same?
The short answer is that it’s easy to use balances as our proxy for profitability.
We’ve taken balances from one in a series of important metrics and made it the be-all and end-all measure of a deposit’s worth.
Everybody relates to balances.
We understand balances because we have experience with them.
But when we use balances as our measuring stick we miss important characteristics.
We look on “the system”, see a big balance and fall all over ourselves rushing to offer special deals or special services or special pricing or scurry to waive a fee.
The only problem is that balances are a poor predictor of profitability.
Oh sure, in a perfect world a bigger balance would be associated with a higher profit…
…But we’re not living in a perfect world.
So if balances aren’t the answer, what is?
What are we missing?
Behavior… that’s what we’re missing.
Deposit balances must be considered in the context of deposit behavior.
And behavior with respect to deposits is defined by 2 simple things…
- Transaction volume, and
- Delivery channel.
Long story short…same balances but different transaction volume and delivery channels can mean a vastly different #depositprofitability