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It’s interest time

Jan 30, 2015

Even in the current low interest rate environment, I’m always pleased when my bank account is credited with its interests. In many countries this occurs on an annual or semi-annual basis. But why stop there? And as a customer, would you favor a bank that pays your interests every six months, or every week?

The answer is evident, in particular since there are today no technological barriers that prevent paying interests on a weekly, daily, hourly or even ‘secondly’[1] basis. Therefore, customers will soon expect to receive their interests more frequently. The frequency of interest payments is thus a variable in its own right in the designing of savings products.

From a bank’s perspective, besides the more frequent interest calculations, the main consequence is a stricter – but also more predictable – liquidity position. However, providing frequent (real-time?) interests would be a step toward a more customer-oriented bank and a clear differentiator.

More generally, differentiation over long-standing activities such as saving and lending - even in this age of intense innovation - still provides valuable competitive advantages.

 

David Andrieux, PhD



[1] The fact that the term ‘secondly’ does not exist is telling. Language has not yet caught up with today’s technological reality.

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