Magazine article American Banker

Deloitte Sees Dogfight with Nonbanks over Deposits Heating Up

Magazine article American Banker

Deloitte Sees Dogfight with Nonbanks over Deposits Heating Up

Article excerpt

Banks will have an even tougher time fending off nonbanking companies this year in the race to hold onto deposit market share, according to a study.

On Deloitte & Touche Consulting Group's annual top 10 list of banking trends, No. 1 for 1998 is a slowdown in revenue growth as competition for "wallet share" with mutual fund companies, insurers, and pension funds erodes banks' traditional customer base.

Banks' share of deposit dollars has been slowly declining since the early 1990s, according to Deloitte & Touche. In 1900, banks controlled more than 50% of deposit dollars; in 1995 they controlled less than 30%.

But 1998 could prove to be particularly difficult, the annual study said. Banks, which have enjoyed 14% revenue growth as an industry since 1995, are now facing increasing competition for deposits at the same time their profit margins from interest income are narrowing and their costs of delivering products and services are rising, the study said.

Financial relationships with individual households "are far more fragmented than they have been in the past," said William Clay, a partner with Deloitte & Touche's national bank practice, based in Atlanta. Customers are being split among banks, insurers, and mutual fund companies when they once might have been totally owned by a bank, Clay said.

Other trends identified by the survey include the use of electronic banking services to reach new customers and the declining profitability of traditional branch banking.

Mr. Clay said banks have to fight for deposit market share by tailoring their products to customer segments. By lowering the costs of delivery, banks can reap higher revenues and higher profits, he said.

One customer segment has been primarily responsible for the rising costs of product delivery, Mr. Clay said. This segment, representing 30% to 40% of all banking customers, tends to maintain multiple, low-balance deposit accounts and use the widest variety of traditional and electronic delivery systems, Mr. …

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