Unlocking Loyalty: The Power of Unifying Deposits and Lending Products

Customer loyalty has eroded significantly, posing a major challenge for banks amid factors like the regional banking crisis and prolonged economic downturns.

Most U.S. consumers and small businesses engage with multiple banks, making it challenging for financial institutions to retain and properly engage customers. Research from Consumer Affairs shows the average American manages their personal finances using two to three banks, while small business owners typically maintain around five accounts for deposits and loans, according to Oracle. Worsening the situation for banks is that both demographics are willing to switch financial institutions at a moment’s notice, which played out in real-time last year during the regional bank crisis.

To combat declining customer loyalty, forward-thinking financial institutions are increasingly exploring the unification of their deposit and lending product experiences. This can be a powerful strategy if leveraged correctly and has various implications for both banks and their customers, particularly new ones.

In addition to driving deposit and loan growth, this shift to a unified product approach provides the bank with valuable data to anticipate customer needs. This fosters a stronger relationship between banks and their customers, leading to increased retention and profitability. Once a financial institution captures a new customer or members, it can focus on personalized interfaces and tailored financial advice, enhancing engagement and loyalty.

Winning over consumers

For the consumer segment, banks want to attract sticky consumer deposits that can be converted into long-term, profitable relationships, where customers use multiple products over time. One way to compete for these deposits is by offering attractive interest rates; however, this strategy has its downsides.

High Annual Percentage Yields (APYs) on deposit accounts tend to attract consumers who  frequently switch banks in pursuit of the best rates. A Motley Fool survey from earlier this year found that 88% of the 2,000 consumers polled considered a high APY on savings as a factor when opening a new account. Banks can combat this behavior in several ways, with lending products making a significant difference.

Consumers are increasingly inclined to take out loans and other credit products from local institutions — especially when these banks provide a seamless digital experience. By improving the convenience and accessibility of lending products, banks can deepen customer relationships, creating a sense of loyalty that goes beyond interest rates alone. The combination of deposits and lending also uncovers valuable customer insights.

When customers see that their bank understands their unique financial needs and offers tailored products, they are more likely to remain loyal and use multiple banking services, including deposit accounts. In this way, a robust lending portfolio not only generates revenue but also reinforces the bank’s deposit base, creating a stable foundation for long-term growth.

Capturing market share in the sought after SMB market

The approach is similar for small and medium-sized businesses (SMBs), although their needs differ.

Customer loyalty among SMBs is particularly fragile due to significant challenges in obtaining working capital, especially when the application process is slow.

A 2023 Goldman Sachs survey found that 70% of SMBs applying for new loans had difficulty accessing the capital needed to thrive — or, in some cases, survive. Goldman attributed this to a combination of higher interest rates and tighter lending standards.

Worsening the situation, large banks’ approval rate for business loans dropped to just below 15%, a 10-month low, according to a joint report from PYMNTS and NCR in late 2022. This presents a prime opportunity for community banks and credit unions to step in.

A strategy that combines access to capital with a superior digital experience is vital. It’s a multi-faceted approach that includes advanced technology, which results in a better customer experience, the ability to approve more loan applications, and white-glove service to fulfill future customer needs.

Why modernization is non-negotiable

Technology innovation is crucial, as banks should aim to deploy the best digital experience through technology upgrades.

Both consumers and SMBs have repeatedly shown a willingness to do business with non-traditional lenders such as neobanks, often trading higher interest rates for a better, faster experience. They want loan approval and funds deposited into their accounts in days, not weeks.

Banks need a solution that can handle a high volume of account openings and loan applications while also featuring built-in credit decisioning and anti-fraud capabilities.

A bank that deploys an account origination system allowing for a dual application process for both a checking account and a credit product provides a better customer experience than most competitors. Data is key. Banks can leverage big data and machine learning to anticipate customer needs. Data-driven insights enable personalized financial products, targeted offers, and more relevant customer communication.

This increases loyalty and strengthens the overall relationship.

A superior digital experience is not always enough, which is where white-glove service becomes essential.

This can mean anything from omnichannel support to proactive account management or tailored financial advice.

For consumers, it could involve planning for retirement, while for SMBs, it might mean anticipating slow periods during the year.

In an era where customer loyalty is increasingly difficult to maintain, unifying deposit and lending products offers banks a compelling strategy to improve retention. By streamlining the account opening process and providing personalized experiences, banks can better meet their customers' evolving needs while strengthening relationships.

As the financial landscape continues to shift, institutions that prioritize innovation and customer-centric approaches will be better positioned to thrive in a competitive market.