Problem: The Deposit Outflow
In the face of the ever-changing economic landscape, banks play a crucial role in ensuring financial stability and providing essential services to individuals and businesses. However, recent times have presented significant challenges to banks worldwide. One of the key issues haunting the banking sector today is the relentless struggle with deposit outflows (see more below). In this recipe, we’ll shed light on how banks are grappling with this phenomenon in the current economic climate and how Twilio Engage can solve these problems.
What is a Deposit Outflow?
Deposit outflows occur when customers withdraw funds from their bank accounts at a faster rate than new deposits are being made. This situation can arise due to a multitude of factors, including economic uncertainty, market volatility, changes in interest rates, and customer sentiment.
The current economic climate is marked by increased volatility, uncertainty, and a growing sense of financial unease among individuals and businesses. Factors such as geopolitical tensions, trade disputes, and the ongoing global pandemic have all contributed to a sense of insecurity, leading to an environment where deposit outflows become more prevalent.
Why do Deposit Outflows happen?
Economic uncertainty: Uncertain economic conditions create fear and prompt individuals and businesses to hold more cash or seek alternative investment opportunities, leading to a decrease in deposits held in banks.
Low interest rates: In response to economic challenges, central banks often lower interest rates to stimulate economic growth. While this can benefit borrowers, it reduces the incentive for depositors to keep their money in banks, as the returns on savings diminish.
Changing customer behavior: Technological advancements have revolutionized the way individuals manage their finances. The rise of digital banking, payment platforms, and fintech startups has provided customers with more choices, making it easier to switch between financial service providers and reducing customer loyalty to traditional banks.
How does this affect the bank?
Liquidity challenges: Deposit outflows can strain a bank's liquidity, as they need to maintain a sufficient amount of cash to meet customer withdrawal demands. If a bank experiences a sudden surge in outflows, it may struggle to maintain adequate liquidity, potentially leading to financial instability.
Profitability pressure: As deposits decrease, banks face challenges in generating revenue through lending and investment activities. This decline in profitability can impede their ability to provide loans to individuals and businesses, hampering economic growth.
Reputation and trust: Frequent and substantial deposit outflows can damage a bank's reputation and erode customer trust. If depositors lose confidence in a bank's ability to safeguard their funds or fulfill their financial obligations, it can lead to a further decline in deposits and create a negative spiral for the institution.
What can the bank do about it?
Enhancing customer communication: Banks need to proactively communicate with their customers to address concerns and provide reassurance during times of economic uncertainty. Clear and transparent communication can help mitigate deposit outflows by building trust and confidence in the bank's stability.
Embracing technological advancements: Banks must adapt to the digital age by investing in advanced banking technologies. This enables them to offer innovative products, improve customer experience, and compete with emerging fintech players. Embracing digital transformation can help attract and retain customers, mitigating the impact of deposit outflows.
The current economic climate has created a challenging environment for banks, with deposit outflows becoming a persistent issue. To navigate this landscape successfully, banks must focus on building trust, diversifying revenue streams, and embracing technological advancements.
Step 1: Create your funnel events
For most finance-related applications, there is a sequence of steps you’d expect new users to take to achieve an ultimate goal of conversion. The first step is to create a list of key conversion events in a notepad or spreadsheet. The end goal is to approve a loan to a customer, but the steps leading to the approval must be done correctly! While individual cases may vary slightly in the detail, here are a few generally-helpful tips we’ve found:
Track impressions as well as events. You want to see how many people filled out your form, but also how many people got there in the first place. Make sure you are making page calls or tracking events when a user first enters a funnel step as well as when they leave it.
Take it slow. Don’t agonize over getting individual steps in your funnel exactly right. What's most important is that you have a definition of the funnel that you can iterate on over time.
Minimize the effort of each step. The best funnels we’ve seen balance the value the user gets from the cost to complete that step. If the cost is too high, users will drop off.
Step 2: Sending events into Segment
Now that you’re tracking the right events, you will want to send funnel events into Segment. Ensure you have Javascript or mobile sources created within Segment that are tracking your key goals and metrics and the steps leading up to it. If you don’t know what your key goal or metric is, we suggest reading our article on choosing the “one metric that matters.”
Whatever yours is, make sure it ties to some meaningful part of your businesses’ revenue. Examples of common conversation events could include applications submitted, account funded, or users signed up. Once you have the one metric that matters, make sure you’re tracking the 3-5 steps which lead a user to that point.
Step 3: Create a user-specific Computed Trait within Twilio Engage
Navigate to Compute Traits within Engage and Create a new Computed Trait:
Next, you will select Predictive Traits with a Custom Predictive Goal which will be set to determine which users are most likely to transfer money. To create this trait prediction, you are looking for all customers who have performed specific events that could potentially influence their behavior. In this example, we have chosen events such as Account Created, User Logged In, Credit Card Applied, and call scheduled.
Next, you will set your prediction criteria to determine what you are trying to predict (Deposit Outflows in this recipe) :
Next, you want to explore which of the users you want to market to and are more interested in connecting with:
As you can see from your prediction, the top 20% of your customers, given the parameters you set, are 5x more likely to transfer money out of their bank account than an average customer. By being able to identify these customers, we can now create segmentations to proactively target these users before they move forward with their transfer.
To create an Audience specifically to target this group of customers, you can do so simply by clicking “create audience” next to your prediction graph:
Once we have created the audience, you will see your audience created and ready to be sent to various outreach destinations:
Once this audience is created, we now want to target these customers who are most likely to have deposit outflows. To do this, navigate to Journeys within Twilio Engage:
Next, we will create a new Journey to outreach to customers who are most likely to be transferring money.
The first step in journey creation will be to set an entry criteria. This will act as a top of funnel as we personalize the experience:
By clicking ‘Import from audience’ you will be able to utilize the audience that we created in the previous step:
Next, you will create a multi-branch split enabling us to send an advertisement to the group identified highlighting your Bank’s offers/benefits to them. We will also be able to send them a personalized email letting them know about your Bank’s offerings.
Wrapping up
In this recipe, we learned an easy way to harness the ability of AI and machine learning to predict which customers are most likely to remove money from your bank. Given current economic conditions, banks need to be nimble to protect deposits and prevent deposit outflows as interest rates rise and competition increases.
Getting started is easy
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