The High Interest Rate Environment and its Impact on Consumers and Financial Institutions

The 2024 Alkami Telemetry Data Report, The High Interest Rate Environment and its Impact on Consumers and Financial Institutions, highlights multiyear trends in key deposit, loan, and payment products, drawing from an aggregated panel over 2.5 million account holders. As financial institutions and consumers alike face challenges presented by the fluid interest rate environment, this report provides industry benchmarks and trends in consumer behaviors, and the actions that regional and community financial institutions (RCFIs) can take to gain intel through transaction enrichment, and insights derived from transaction data. Bank and credit union leaders can leverage data analytics in banking to inform strategies related to business decisions, marketing campaigns, product gaps and innovation.

Additionally, a recent study was commissioned by Alkami and conducted by The Center for Generational Kinetics, surveying 1,500 digital banking consumers in the U.S. to reveal the current attitudes and perceptions of the various generations and how their financial journeys are being impacted by the macroeconomic environment.

Research Highlights Derived from Transaction Enrichment

The data analyzed by Alkami Research revealed the following insights taken from the 2024 Alkami Telemetry Data Report:

• Housing market
  • Home equity line of credit (HELOC) originations peaked in 2022.
  • Average monthly rent has increased 24.4% over the past four years, up to $971 per month in Q4 2023.
  • Mortgages, with the merger of rising home prices and interest rates, resulted in the average home buyer affording 52% fewer square feet in 2023 than 2019.
  • Financial institutions have seen a 72.5% drop in mortgage originations from 2020 to 2023 and a 24.2% increase in HELOC originations over the same timeframe.

• Auto loans
  • Car buyers paying 32.5% to 57.1% more per month for a used or new auto loan, respectively, from 2019 to 2023.

• Certificates of deposit (CDs)
  • There was an 11.7x premium in interest rates for a 24-month CD opened in 2023 versus 2021.
  • The average CD term dropped 51.2% from 21 to 10 months from Q4 2021 to Q4 2023, and over the same timeframe, the number of CD accounts opened saw a more than sixfold increase.
  • As a result of the above, CD balances were more than 82% higher at the end of 2023 versus 2021.
  • By the end of Q4 2024, 87.7% of CD balances held at the end of Q4 2023 will mature.

• Deposit account balances

• • Average consumer deposit balances in checking, savings, money market, and CDs are higher today than they were in 2019.
  • Balances appear to be eroding due to higher prices consumers are paying.
  • The mix of CDs as a percent of deposit accounts has increased at the expense of money market accounts.

• Credit card usage and Buy Now Pay Later (BNPL)
  • Since 2020, the average monthly payments on credit cards has been increasing, reaching $2,376 by 2023, a 19% increase over pre-pandemic levels; but the number of credit card payments has remained seemingly flat.
  • There were 5.17x more BNPL users in 2023 than in 2019.
  • According to recent research commissioned by Alkami, nearly 60% of digital banking Americans who use online-only banks say that, in five years, BNPL transactions will exceed credit card transactions in the US, the highest of any primary financial provider tested.

Recent research commissioned by Alkami shows that 67% of digital banking Americans say the rising interest rate environment has had a significant impact on their standard of living and 59% are living paycheck to paycheck. With the economic pressure being felt by financial institutions and consumers, banks and credit unions are positioned to differentiate themselves from the competition through insights derived from transaction data – data already sitting in their ecosystem. The transition to becoming a data-informed digital banker will empower financial institution leaders to lead strategic decision-making with knowledge-based intel and make messaging and engagements relevant for their account holders’ financial journey through personalized banking.

Marketing for Financial Institutions: The Data-Informed Digital Banker

According to the Financial Brand, chief marketing officers across the industry have identified revenue growth as their top mission-critical priority for their department over the next 12-18 months.  Bank and credit union marketers can deliver on this priority by focusing on intel to transform into a data-informed digital banker. Account holders’ transaction data found inside the core is the catalyst for this strategy, which after transaction enrichment, apprises leaders with behavioral insights on how the market is impacting consumer financial decisions.  Financial institutions can use these insights derived from transaction data to then identify:

• A targeted audience segmented from your account holder database that may have an expiring certificate of deposit product or are underutilizing their current HELOC
• An audience paying mortgage loans to competitive institutions
• Account holders that may benefit from setting up an automatic transfer to a savings or investment product each month with the money from a previous auto loan payment.
• Opportunities to educate about the benefits and risks of buy now pay later (BNPL) while recommending the institution’s own debit or credit card for consolidated spending.
• An audience that may benefit from financial wellness assistance.
• Changes in spending behavior so the bank or credit union can actively reach out to at-risk account holders with retention offers before they decide to leave.
• Intel to make profound business decisions surrounding marketing campaigns, product gaps and innovation.

The data-informed digital banker is a mindset, where banks and credit union leaders can change the narrative of consumer perception. According to the same recent research mentioned above, 64% of digital banking Americans feel like too often financial providers don’t pay enough attention to the needs of their account holders, while 83% think their primary financial provider will continue to be their most important financial provider in the next year.  Financial institution members and customers have diverse banking needs, and using transaction data to gain the intel on individual spend and money movement behaviors will give bank and credit union leaders the opportunity to provide a concierge-like service through their interactions.

Using Data Analytics in Banking to Drive Growth

A data-driven strategy is built on the foundation of transaction data, and can be the catalyst to guide a financial institution to digital maturity.  A recent research study, the Retail Digital Sales & Service Maturity Model, found that the most digitally mature banks and credit unions in the market have a data modernization strategy and report up to twice the annual growth as the least advanced.  This strategy not only guides the journey toward digital maturity but also supports key business decisions in navigating fluctuating interest rates, driving product innovation, and enhancing marketing tactics for individualized offers and personalized banking.

Download the 2024 Alkami Telemetry Report, The High Interest Rate Environment and its Impact on Consumers and Financial Institutions to read more insights about how regional community financial institutions can take action now.

FAQ: Data Analytics in Banking – Insights from the 2024 Alkami Telemetry Data Report

1. What is the 2024 Alkami Telemetry Data Report about? The report explores the impact of the high-interest rate environment on consumers and financial institutions. It analyzes multi-year transaction data based behavioral trends in relation to key financial products like deposits, loans, and payments, using data from over 2.5 million account holders. The report offers insights into consumer behavior and provides strategies for financial institutions to leverage transaction data for better targeting and personalized banking.
2. What are the report’s key findings related to the housing market? The report highlights that home equity line of credit (HELOC) originations peaked in 2022, while mortgage originations dropped 72.5% from 2020 to 2023. Rising home prices and interest rates have reduced the average home buyer’s purchasing power. Additionally, average monthly rent has increased by 24.4% over the past four years.
3. How has the interest rate environment affected auto loans? Car buyers are now paying 32.5% to 57.1% more per month for a used or new auto loan respectively, auto loans compared to 2019. This increase reflects the overall trend of rising costs in the automotive market.
4. What trends were observed in certificates of deposit (CDs)? There has been a significant shift towards CDs, with a premium increase in interest rates for 24-month CDs since 2021. The report notes a sixfold increase in CD accounts opened from Q4 2021 to Q4 2023 and a substantial rise in CD balances by the end of 2023 as compared to 2021. By the end of Q4 2024, 87.7% of CD balances held at the end of Q4 2023 will mature.
5. How are consumer deposit balances changing? While overall deposit balances in checking, savings, money market accounts, and CDs have grown since 2019, the mix is shifting. Consumers are moving more funds into CDs at the expense of money market accounts, likely due to attractive interest rates.
6. What is happening with credit card usage and buy now pay later (BNPL) services? The average monthly credit card payment has has been increasing since  2020, and by 2023, revealed a 19% rise from pre-pandemic levels – the frequency of payments has remained stable. BNPL usage has surged, with a 5.17x increase in users from 2019 to 2023.
7. How does the high-interest rate environment impact consumers? Recent research shows that 67% of digital banking Americans say the rising interest rate environment has had a significant impact on their standard of living and 59% are living paycheck to paycheck.
8. What is a “data-informed digital banker,” and why is it important? A data-informed digital banker embraces a data-driven strategy and is equipped to provide personalized banking at scale. Engaging through multiple digital channels, they can use transaction data to gain insights into consumer behavior and financial trends happening within their financial institution’s ecosystem. This approach helps financial institutions tailor their products, services, and marketing efforts to better meet customer and member needs, ultimately driving growth and improving satisfaction.
9. How can financial institutions use transaction data for growth? By analyzing transaction data, banks and credit unions can identify strategies for product innovation, reveal competitive payments being made, build targeted audiences, understand account holder spend patterns, and offer personalized banking services. This data-driven strategy helps institutions create effective marketing campaigns that are relevant for each account holder’s individual financial journey.
10. Where can I learn more about the findings and recommendations in the report? For a comprehensive understanding of the insights and strategies outlined in the report, download the 2024 Alkami Telemetry Report, “The High Interest Rate Environment and its Impact on Consumers and Financial Institutions.”