ISO: A Viable Solution to a Deposit Growth Challenge
Core deposits — primarily checking accounts, savings accounts, and money market accounts — are stable, low-cost deposits that are the foundation of a bank’s funding. Unfortunately, core deposit growth has become one of the greatest challenges facing FIs, including community banks. And so, consumer and business deposit acquisitions (a 2025 priority) will remain a focus in 2026 and beyond.
Over the last five years, traditional banks have lost over $3 trillion in deposits and investments to fintechs. While fintechs currently control only about 3% of overall financial revenue, they are growing three times faster than traditional banks.
- The $3 trillion loss is made up of $2.15T in money shifting into fintech investment accounts plus an additional $1.05T migrating to fintech savings accounts.
- Deposits held by small banks hover at $5.3T – more than a $86B drop from December 2022 as measured by the Federal Reserve
Understanding Why
The reasons behind the ongoing deposit challenge are both straightforward and complex as new competitive players and evolving customer behaviors drive deposit growth challenges. Here’s what we know:
#1: Primacy no longer exists
Keeping all finances at one institution is largely gone. About 50% of businesses use three or more banks while consumers bounce between digital wallets, neobanks and traditional checking accounts.
#2: Fintechs have increased their offerings and broadened their focus
Fintechs are now taking aim beyond payment products to core banking products. Many players sit outside the banking system and have several competitive advantages: They are not bound by the same regulations, capital requirements or infrastructure constraints as banks. For example, stablecoins are eroding deposits; private credit is going after loans.
- Looser regulations, abundant venture capital and technological innovations continue to open the door for thousands of new competitors.
- Neobanks have proliferated, with around 700 digital banks and wallets vying with traditional banks to store and transfer customer funds. Nubank, Revolut and Kakao Bank serve millions of customers and continue to grow.
- A new wave of challengers comes armed with agentic AI, stablecoins and private credit platforms while going after bank deposits and lending portfolios.
#3: Competition remains abundant among traditional players
Consumers and business owners are flooded with sign-up bonus offers touting competitive rates for new accounts. This encourages prospects and customers to engage in chasing sign-up bonuses. At the same time, new account inactivity is not uncommon due to the friction of switching direct deposits and recurring bill payments.
- 50% of new checking accounts are opened as “soft churn”—where customers open a new primary account but leave an old one open and active. This results in splitting their financial loyalty.
- Bank accounts are increasingly treated as a place for a paycheck to land but funds are quickly routed elsewhere.
#4: Community banks may have a limited view of customers
This blind spot results in generic product pitches that consumers may perceive as pressure versus value-add advice. On the flip side, category disruptors have overtaken regional and community banks using AI-driven banking experiences and hyper-personalized recommendations.
#5: Younger cohorts exhibit different banking preferences and behaviors
- Gen Z – a highly desirable cohort – regularly switch FIs…2 to 3x more often than older consumers.
- Tech-savvy Millennials like digital platforms like Wealthfront. These leading digital advisors have captured massive capital and are managing billions in retail assets.
An Emerging Strategy Available to Community Banks
Traditional strategies – and overused tactics — are moving to be unsustainable. Accenture recently observed: As liquidity becomes more mobile and customer loyalty wanes, incumbent banks must redefine their value proposition. Safety and security alone will no longer be enough.
Additionally, Independent Banker focused on an emerging strategy where community banks can grow deposits through the use of reciprocal deposit networking. A reciprocal deposit network allows a bank to automatically split large customer deposits into chunks of $250,000 or less and then exchange them with other participating banks. This allows depositors to be FDIC insured on massive balances while maintaining a single bank relationship.
High-net-worth individuals, municipalities, and corporations can easily extend protection to millions of dollars without opening multiple accounts at many different banks. Recent research indicates reciprocal deposit networks are getting an outsized share of deposits from small and midsized banks.
Reasons to consider the strategy include…
- It allows smaller institutions to attract big money and compete with national banks by offering massive insured limits to clients.
- During times of economic stress, depositors often pull uninsured funds to mitigate risk – however, when deposits are in a reciprocal network, funds are fully insured, effectively stopping “deposit flight.”
- Reciprocal deposits are considered by bankers to be “sticky” — the funds are stable and reliable.
Considerations that accompany this strategy include…
- Targeting specific, high-value segments with the potential for large deposits
- Positioning the growth deposit tool as a risk-free, streamlined solution
- Designing and implementing banker education – turn to online modules with explainer videos, product tip sheets, segment insights and personalized tools.
Some encouraging news is that reciprocal deposits reached $440B in September 2025 with about 2,105 banks – predominantly small and mid-size banks – indicating this core deposit strategy is not simply a trend.
Community banks without a solution should consider this strategy to remain competitive with big banks and fintechs while managing their risk. Once in place, it’s up to community banks and their marketing teams to build awareness, educate and engage the right segments to ensure success.
Ultimately, reciprocal deposit networks give community banks a proven, scalable way to compete for deposits alongside fintechs and megabanks, with adoption already topping $440 billion across 2,100+ institutions. The FIs that win will pair this product innovation with smart marketing: targeting high-value segments, positioning it as a low-risk growth lever, and arming bankers to sell it with confidence. For banks ready to grow deposits, this is a chance to turn stability into a truly competitive edge.
Sources:
Cocheo, Steve. “Banks Lost $3 Trillion to Fintechs in the Last Five Years. Blame the Primacy Myth.” NASCUS, 24 July 2025, www.nascus.org/2025/07/24/banks-lost-3-trillion-to-fintechs-in-the-last-five-years-blame-the-primacy-myth/. Originally published by The Financial Brand.
FICO. “How to Win Banking Primacy with Composability + Hyper-Personalization.” FICO Blog, fico.com/blogs/how-win-banking-primacy-composability-hyper-personalization.
Alkami Technology. “Alkami’s Generational Trends in Digital Banking Consumer Study Reveals Insights for Establishing Primacy.” Alkami, 25 June 2025, www.alkami.com/news/alkamis-generational-trends-in-digital-banking-consumer-study-reveals-insights-for-establishing-primacy/.
R&T Deposit Solutions. “What Are Reciprocal Deposits?” R&T Deposit Solutions, 15 Apr. 2025, rnt.com/resources/what-are-reciprocal-deposits/.
R&T Deposit Solutions. “The Rise of Reciprocal Deposits: Strengthening Core Funding for Community Banks.” R&T Deposit Solutions, 17 Nov. 2025, rnt.com/resources/the-rise-of-reciprocal-deposits-strengthening-core-funding-for-community-banks/.
