
I work primarily with financial institutions, which are nothing if not bound by tradition. The basics of banking have remained virtually unchanged in the last 50 years. As I speak on innovation at many of the nation’s state banking associations, I am insistent that bankers must change their thinking about their products and services and how they are being offered based on who their customers are becoming.
I was pleasantly surprised to learn of an innovation being applied to one of the most traditional and unchanged banking service, the Certificate of Deposit. Known as a “CD”, these instruments were a key investment element for individuals that had excess cash and could assign them to the financial institution for a fixed period of time. Penalty fees were assessed if you cashed out your CD early. Over eight years of nearly zero interest rates, CDs offered little advantage to a money market account and had somewhat faded from memory for most savers. However as interest rates creep up, there are upticks in CD balances across all institutions.
The innovation, offered by a company call The CorePoint, provides an analysis tool for customers interested in cashing out CDs. It throws out the book on the traditional timeframes CDs are offered. No longer are 3, 6, 12, 18 and 24-month terms the “standard” for a time deposit. If a customer’s best pricing and liquidity option is a 19-month CD, then The CorePoint prices a 19 month CD. Their system enables the banker to make a direct comparison of a customer’s existing CD and shows how much money the customer would earn during the life of a CD. This is important: if a customer learns they can get a tenth of a percent more interest at the FI down the street, they are inclined to move. But when faced with the difference of $2.47 a month in actual interest earned, the customer can now evaluate the overall relationship of their existing relationship. The frontline staff can have more meaningful conversations about the customer’s total relationship, saving many accounts that previously “walked”.
For clients who want to pull their money out because they are concerned about not having it available when needed, The CorePoint created another innovation, this time on a savings account. Converting a CD into a savings account doesn’t sound like a good idea, but the trick is offering this special access savings account only by invitation and only to a customer that is converting from a CD. No deposits are allowed; if the customer reduces the balance, they cannot add it back, unless they convert another CD. This allows the FI to focus on retaining deposits, as opposed to having to chase new deposits in the open market, which is ultimately a money saver due to the associated acquisition and marketing costs.
Now, I am not affiliated with The CorePoint and have no financial interest in their success, but I am director of a community bank and have sent all I’ve learned about The CorePoint to my President for his review. The bigger issue is that this represents a real innovation on a traditional banking product virtually unchanged for decades. It shows me it can happen, even in an industry as slow to innovate as banking.
What services are you offering that have not substantially changed for years? Have you taken a hard look at what might be a game changer for your industry? Try bringing in someone who is not steeped in your industry but is an innovative thinker who can evaluate strategic opportunities. Subsequently, listen to their comments and spend some time evaluating whether they are feasible and may appeal to new future customers. You might just find a new twist to a time-honored service that becomes the new industry standard!
David is an international speaker, executive coach, serial entrepreneur, and shipwreck survivor. He is the bestselling author of Grounded (Little River, 2016). If you’re interested in David’s expertise in the areas of decision-making in a crisis, leadership, and metacognition, please get in touch here.