How to get started?
When bankers ask me about getting started with deposit profitability they expect me to talk about data extracts and algorithms. Instead I talk about what you’re trying to accomplish.
Just like going on a car trip, you need to start by talking about your destination before you plan your route. And with deposit profitability that means talking about your deposit profit target.
Now since setting a profit goal for individual deposit accounts is usually a new concept, we do this in stages. And we start with plotting breakeven profit vs balances using “Four Ds” segmentation. Here’s a quick quadrant review:
- Q4 (top right) has both big profits and big balances.
- Q3 (top left) meets profit target with small balances.
- Q2 (bottom right) fails to meet profit target despite big balances.
- Q1 (bottom left) has low profits and small balances.
Since we’re starting with breakeven, Q1 and Q2 contain our money losing accounts. Just identifying them is a big step forward.
For most banks a good next step is examining Q3 profitability. Q3 contains small balance money-making accounts. They’re real life proof of what profit target is realistic at your bank.
Once you reach this point you are well on your way to deposit profitability success.