The market for demand deposit accounts has changed over the past several years, and retail banks are feeling the effects.
A challenging financial climate means fewer customers shop around at competing banks. At the same time, ever-tightening regulatory requirements reduce fee income and profit for the retail banking industry.
It’s time for the retail-banking sector to look to new markets and methods to rejuvenate and grow this segment of their business. Banks today, however, are missing opportunities to grow their demand deposit account business because the traditional methods for evaluating potential clients don’t accurately reflect the customer’s true financial picture.
Missing elements in the credit report
One of the main problems with identifying new markets is the traditional dependence of the retail banking industry on using credit reports to evaluate potential deposit clients. Doing so overlooks two key factors that could identify new deposit banking clients.
First, a conventional credit report only shows an individual’s monthly debt obligation. While useful for credit applications, these reports do not include alternative data from regular bills such as cable or satellite television, phone and Internet, utilities and rent payments. The payment history and proportion of these bills to an individual’s income can indicate financial responsibility, financial capacity and likelihood of requiring deposit account services. In other words, reviewing these payments may reveal new segments of potential clients.
Second, credit reports provide an inaccurate financial picture for up to 64 million Americans, according to Retail Banking: The Future of Demand Deposit Accounts, a white paper published by Equifax. The inaccuracies may be due to marital status, age or immigration status.
This is a huge segment of the population for banks to overlook — and a huge amount of potential business for banks seeking new deposit account customers.
ISRB and potential deposit clients
Equifax’s Insight Score for Retail Banking (ISRB) captures credit report information and alternative data to assist retail banks in identifying potential deposit clients. In fact, using an ISRB helps banks get between 16 and 18 percent more deposit accounts than using a credit score alone, according to Equifax’s retail banking white paper. This information also can help create and implement flexible account treatment strategies to further grow the demand deposit account portfolio for retail banks, both now and well into the future.