Deposit Displacement

Deposits at banks tripled between 2000 and 2017.

At the risk of sounding like Chicken Little, there is a longer-term trend that will hamper FIs’ efforts to keep up the recent pace of growth. I have a name for this trend: deposit displacement.

Here are four examples of how deposits are being displaced, or redirected away from the traditional banking system:

  • Health savings accounts. Devenir Research projects that deposits in health savings accounts will approach $45 billion by the end of 2018, up from less than $14 billion in 2012. Where’s that money coming from? It’s siphoned away from consumers’ primary checking accounts and into HSA accounts that are probably not held at the same bank as the primary checking account.
  • P2P payments. Between 2014 and 2016, JPMorgan Chase grew its P2P payment volume by $10.6 billion, while Venmo grew its P2P payment volume by $15.6 billion. The other important aspect to focus on is the money left in Venmo accounts. A personal source tells us that Venmo has $2.2 billion of funds sitting in users’ accounts—money that isn’t sitting in banks’ accounts. Displacement through P2P payments will only increase, as Apple has announced that its P2P payment tool will park users’ funds in an Apple prepaid debit card, and not in the users’ checking accounts.
  • Retailer mobile apps. In 2016, The Wall Street Journal reported that Starbucks had $1.2 billion in deposits on customers’ loyalty cards. As other retailers copy Starbucks’ approach to mobile apps, deposits held in retailers’ mobile apps will continue to grow.
  • Robo-advisor tools. Consulting firm AT Kearney estimates that assets held in robo-advisor tools will reach $2.2 trillion by 2020. While this might point to a business opportunity for banks, it’s also a threat. Kearney believes half of those assets will come from currently non-invested assets—in other words, bank deposits.

Mid-size banks and credit unions have seen much of Millennials’ deposits flow to the large banks over the past few years. Deposit gathering for all financial institutions will become more difficult over the next five years, as this trend toward deposit displacement accelerates. There's another, subtler impact, however: Deposit displacement is a sign of the diminishing importance of the checking account as the key financial account a consumer holds. Combating deposit displacement means reinventing checking accounts.

Ron Shevlin
Director of Research
Cornerstone Advisors