Irony behind deposit profitability segments?
The root premise of deposit profitability is the need to calculate instrument-specific profitability for each and every deposit account or relationship. We do this so we can treat each deposit individually and accurately, based on their profitability and balances.
So then what’s the very next thing we do? We take all our individual relationships and regroup them into segments. We calculate their individual values in order to combine them with other similar accounts.
This might leave you scratching your head but it makes lots of sense.
Why? Because the major control we exert over deposit profitability must be related to account types. Account types define deposits and profitability. While in theory we could create an endless number of account types this would create a compliance and operations nightmare.
There’s also another reason to segment related to our mental processes. Our minds do a very good job of grouping and interpreting groups. It’s like a mental shortcut to understanding the key differences between the segments.
There are lots of account differences to consider but only a few really move the needle. Those key priorities are what should drive our deposit profitability segmentation strategies. They’re the reason we segment.