Bank Flow of Funds, Sales, Attrition, Cross sales


Deposit and loan product substitution and cannibalization


Our research using FlowTracker on US retail bank data has indicated that there are substantial differences in product substitution and corresponding cannibalization activities between deposit and loan products.

We had best start with some definitions. What we call deposits in this context are all (customer viewpoint) assets found in a retail financial institution including demand deposits, term deposits, annuities, IRA accounts, brokerage investments and trusts. When we refer to loans, we mean all (customer viewpoint) liabilities such as credit cards, loans, lines and mortgages.

Using these definitions of deposits and loans we analyzed portfolio dynamics of several banks and found that product substitution is primarily a deposit-side story. Of the total changes in customer accounts, over 30% of the dollar value is actually the result of product substitution or cannibalization.

On the loans side, only about 3% of money movement is attributable to cannibalization effects. Both of these measures are exclusive of small dollar activity, compound interest / amortization effects and renewal activity.

Our findings suggest that understanding and quantifying product substitution / cannibalization in retail banks is imperative for the effective management of deposit portfolios.


What can you do differently with this information ?


Having access to the detailed and comprehensive insight into customer's use of products over time is a powerful innovation. FlowTracker illuminates the relationship between products within customer portfolios as customer needs drive usage changes.

With this insight you can identify products that should be bundled together because customers actually use them together. You can actively manage value proposition differentials through pricing and features based on factual observation of product substitution and cannibalization behavior. You can identify and close gaps in your product array, where money is "leaking" out of the bank. You can design product pathways to guide sequencing of offers based on what customers really do. You can identify emerging trends and seasonal effects within your portfolios, guiding product design and introduction timing.

And you can do all of these things in context, because FlowTracker data is easily viewed and analyzed by customer segment and location in addition to the product dimension.


What about performance measurement ?


Product managers in banks have always run the risk of being penalized or rewarded inappropriately for money that leaves their portfolios to go somewhere else in the bank. In the case of money market accounts, for example, as much as half of the apparent loss in customer balances in the quarter after IRA season is the result of transfers into other investment products within the bank.

FlowTracker completely resolves this issue. As a performance measurement innovation for bank product managers, FlowTracker is revolutionary: plans, targets and actual results can be broken down to explicitly recognize balance movement within the bank, where it is going and coming from, the effects of cross-sales, new money sales and lost business. For the first time we can provide a basis for measuring, planning and managing the flows product managers are accountable for creating.

Questions? Please contact us