U.S. banks have seen an inflow of more than $2 trillion in deposits since the beginning of the coronavirus in January, according to FDIC data. (https://www. federalreserve.gov/releases/h8/current/) In April, deposits increased by a record of $865 billion, more than the previous record for an entire year. Further, more than ⅔ of these deposits were concentrated at the largest 25 banks in the U.S. according to the FDIC. The many reasons for this are in response to the pandemic: large corporations drew on lines of credit and left those funds in cash, funds from the stimulus programs for small businesses, unemployment benefits and other Federal Reserve programs to support the financial markets, and retail and institutional customers hoarding cash.
It’s no wonder, then, that when we meet with CEOs, CTOs, and CFOs of potential bank partners they tell us, “We have excess liquidity on our balance sheet. Why would we use Raisin’s Savings as a Service (SaaS) now?” But this question represents short-term thinking on the deposits surge. The right question to ask is, “What is your strategy to keep the proper amount of that liquidity on the balance sheet long term?”
Banks need to look for ways to retain deposits as long as the funding is needed. Ways that are flexible enough to adjust to individual needs of their customers. This is where the “embedded finance” offered by fintech comes in. For instance, Raisin’s SaaS software enables banks to: (i) facilitate product development, (ii) to bring customized products to market to create value for their clients (and not just compete on rate), (iii) to realize operational efficiencies, and (iv) to provide flexibility in product distribution.
Raisin’s SaaS facilitates product development in that the time deposit product attributes are preloaded. A product person at a partner bank can select attributes from the drop-down menu with a few clicks, and have the product available for sale to clients, in most instances, in less than one hour. Solutions like this provide banks an end run around their legacy systems at minimal extra cost.
Furthermore, Raisin’s SaaS lets partner banks compete on something other than interest rates. For instance, today a banker can implement a time deposit ladder, a cash strategy in which the client takes a lump sum, divides it into sums of equal amounts, and invests them in time deposits of differing maturities. Normally a $50,000, 5-year time deposit ladder would be implemented by purchasing a 1 year, 2 year, 3 year, 4 year and 5 year time deposit, each in the amount of $10,000. At each respective maturity date, the principal and interest would be used to purchase a new 5 year time deposit. Today this is done manually, in a time-consuming manner, as 5 separate accounts would need to be opened initially. To continue the strategy, a new account would need to manually opened at each maturity date.
“Banks need to look for ways to retain deposits as long as the funding is needed. Ways that are flexible enough to adjust to individual needs of their customers”
However, using Raisin’s technology, a banker can first model this, along with other cash strategies, and show the client in real time their potential interest rate APY and interest earned amount. Once the client agrees to the strategy, they simply push the “Purchase” button; the strategy is implemented by the software, and the account is funded. No need to manually open multiple accounts, no long wait before the product is ready. With the help of fintech innovation, banks no longer have to engage in such painstaking analog busywork. Banks can also offer what used to be exclusive private banking services to a wider range of clients.
In addition, Raisin’s SaaS provides flexibility to partner banks on where they distribute the SaaS products they create. Banks using this software can choose to distribute within their branch network and or through their online channels, but they can also opt to offer their new products through raisin.com, expanding their reach without the typical cost of customer acquisition. Distribution options are set at product creation and can be updated in real time at any point in the future – letting banks adjust for their immediate and specific funding needs. They can be set at the product level, meaning a partner bank can have two similar offers on market at the same time with different rates, but they can appear in two different distribution channels.
Bank partners see how our software can bring added value to their clients with the unique products it supports. Further, they experience how we help with balance sheet management through the longerterm nature of the products and gain operational efficiencies through automation. Ultimately, banks can meet the challenges of this moment when they ask the long-term strategy questions and embrace a savvy use of innovative financial technology from partners like Raisin.