Deposit Dilemmas: Why Banks are Chasing Deposit Growth

Banks are some of the oldest, most established institutions on Earth. And they didn’t get that way by rocking the boat too much, or leaping at every fad that came along. So when these glacial institutions start to heat up, it’s important to take notice. And that’s exactly what’s happening with customer deposits.

We’ve written before about the rising rates environment and how banks can stay profitable in it. But to fully adapt in this shifting financial landscape, banks are going to need to understand all the factors driving it.

Here’s the top three reasons there’s increased deposit competition:

1. Rates Have Gotten So High, Consumers Are Demanding A Return

As we talked about in our rising rates post, with the Federal Reserve once again raising the interest rates, banks can no longer keep operating at a profit by giving back low interest on savings accounts deposits. Customers are becoming more and more aware that their stands to be a profit.

Naturally, the big banks weren’t keen to change a model that had seen them turning a healthy profit for decades. But with an increasingly informed customer base, they’re being forced to respond with increased interest on new deposits.

This in turn spurs a gold rush — when one bank raises the rates for their customers, other banks have to respond. And some banks are really pushing the ceiling — as reported The Financial Times, Popular Bank (based in Puerto Rico) is offering as high as 2% interest on savings without any of the associated costs such an account would normally entail.

This “race to the top” is only just heating up — and customers are taking notice.

2. Digital Banks Have an Advantage

Big banks have grown, well, “big” because they’re essential pieces in a very complicated puzzle. They have a lot of money and this has typically allowed them to maintain an infrastructure other companies simply can’t afford.

But with the rise of digital technologies and a few disruptors entering the market, banks are being challenged in a few ways. One of these is with “digital banks” that have no brick and mortar storefront. They have lower overhead costs, and are thus able to offer increasingly competitive rates to attract new customers, and steal others from big banks.

As more digital banks crop up, the big institutions are scrambling to respond in a way that will allow them to be competitive — while remaining profitable.

3. FinTech Companies are Offering New Solutions to Facilitate Deposits Competition

While the new banks battle with the big ones for customer deposits, FinTech companies are mobilizing to offer strategies that will allow for increased profitability for banks. This is heating up the competition with the newcomer financial institutions, and giving customers options and flexibility they’ve never had before.

One of the solutions most beneficial FinTech solutions will be “pricing optimization” (something Zafin knows a thing or two about). This allows banks to offer personalized pricing to its customers, rewarding loyalty and incentivizing certain deposit behaviours.

This is most beneficial to larger institutions looking to keep costs down (as building in-house can be prohibitively expensive), but all financial institutions can get a piece of the deposit pie by implementing similar technology.


There’s no one reason why there’s an increase in deposit competition. In fact, there are several. For a bank to gain an edge in the rising rates environment, they’re going to have to consider every angle.

Want to learn more about how to stay competitive? Reach out to us today!

About Zafin

Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.

Cam Smith

Cam is the Product Marketing Strategist at Zafin. With a background in journalism and a passion for blogging, Cam strives to tell compelling digital stories. At Zafin he will share the latest trends and news in the FinTech world, and share Zafin’s role as leader in the industry. Follow him on Twitter @CamSmoth