Driven by the adoption of mobile banking and increased functionality of the website and ATM channels, a new segment of ‘virtual’ retail banking customers is emerging (those who only interact via digital channels). These customers have unique preferences and expectations that can present challenges to banks attempting to improve satisfaction and loyalty metrics. Data from the first three fielding waves of the 2015 J.D. Power U.S. Retail Banking Satisfaction Study can help banks understand the different segments of retail banking customers, and identify how the customer experience may differ from one segment to the next.
For example, study data finds that the negative impact of fees is considerably greater among virtual-only customers (compared to customers who only transact via the branch and ATM). Furthermore, virtual-only customers are more likely to incur certain fee charges and are less likely to indicate that their minimum-balance requirement is reasonable.
Based on these findings, banks can develop strategies designed to improve the fee experience amongst their virtual customer base:
- Clearly illustrate the ‘value’ that customers are receiving in exchange for the fees they pay. For example, in exchange for a given fee, virtual-only customers are receiving a highly functional website and mobile app that allow them transact with the bank in their preferred manner.
- Invest resources in improving aspects of the customer experience that may improve the ‘value proposition’ perceived by virtual-only customers.
- Focus on fee and product education, which may be especially difficult for virtual-only customers who may not visit a branch to receive a face-to-face explanation.
- Consider proactive account reviews of virtual-only customers to ensure that customers are aligned to the correct account. If a better option exists, proactively contact the customer with an alternative product that will benefit them.
The complete 2015 J.D. Power U.S. Retail Banking Satisfaction Study (with all four waves of data) publishes on April 28th.
There is a strong relationship between satisfaction and financial outcomes. Specifically, retail banking customers with high levels of satisfaction (overall scores of 900-1,000) have significantly higher advocacy rates, stronger loyalty, and greater share of wallet than customers with low satisfaction (scores of 700 and lower).
By making a concerted effort to enhance the overall customer experience, banks that are able to achieve high levels of satisfaction stand to benefit from stronger bottom-line growth and improved overall financial performance:
- Achieving a 50-point improvement in customer satisfaction leads to an increase in deposits, loans, and investment dollars equating to a 6% increase in revenue, or $27 million per 500,000 customers.1
- Higher levels of satisfaction are also tied to improved brand perceptions. Customers with high levels of satisfaction (900+) provide an average rating of 6.5 (on a 7-point scale) for the Brand Image attribute Good reputation vs. 6.0 for customers with satisfaction scores of 800-899. The ratings decline to 5.4 among customers with satisfaction scores of 700-799, and to 4.4 among customers of banks with scores below 700.
- Banks that recognize the value of customer satisfaction programs—as measured based on subscription to the U.S. Retail Banking Satisfaction Study, 2010-20142—show greater improvement, compared with non-subscribers, in not only satisfaction (+49 points vs. +30 points, respectively), but also in metrics measuring loyalty (+8 percentage points vs. +4 percentage points); advocacy (+8 percentage points vs. +3 percentage points); and retention (+8 percentage points vs. +3 percentage points).
1 Assumptions: Deposits and share of wallet is self-reported. Interest margin for deposits and borrowing accounts is 3% and 1% for investments. Service charges on deposit accounts = .23% of deposits
2 Subscribers are those banks who subscribed to the J.D. Power Retail Banking Satisfaction Study in at least 3 of the last 5 years (2010-2014).
Source: J.D. Power U.S. Retail Banking Satisfaction Study
Data from the 2014 J.D. Power Small Business Banking Satisfaction Study finds that small businesses are feeling more positive about the financial outlook of their business and the American economy. However, there are significant differences when analyzing results by business size. As displayed in the chart below, small businesses with sales volume of $100k-$249k are less confident about their business outlook and the outlook for the American economy.
Study data also finds that businesses with sales volume of $100k-$249k are significantly less satisfied with the service they receive from their business banking institution. More specifically, these customers are less satisfied across multiple aspects of the business banking experience including Product Offerings, Fees, Credit Services and Problem Resolution.
Banks may have a tendency to overlook business clients of this size and focus on those with larger sales volumes. However, it is important to consider how the current level of dissatisfaction amongst small businesses with sales volume of $100k-$249k may impact bottom-line performance.
For starters, business banking customers that are dissatisfied with their current institution are more likely to attrit and initiate a relationship with a new business banking institution. Additionally, approximately 3/4ths of business customers with sales volume of $10ok-$249k also have personal banking accounts at their business banking institution. Therefore, by failing to satisfy the needs of business banking customers, banks are not only risking the loss of small business relationships, but also the personal relationships that small business customers may also have with the institution.
Profit margins remain a considerable challenge for retail banks, driven largely by regulatory pressures, low interest rates and the decline of fee-related revenue streams. In response to this, banks are continuously looking for cost-cutting opportunities.
Data from the first three fielding waves of the 2015 J.D. Power Retail Banking Satisfaction Study suggests that reducing branch operating hours could be an attractive option for banks looking to trim operating costs. For starters, branch traffic has been declining the past several years, driven mainly by the digital functionality now available via Mobile, ATM and Website interaction channels.
Analysis of study data also finds that the positive impact of providing extended weekday or weekend hours has declined significantly since 2010. For banks looking to reduce operating hours, the chart below may help prioritize their options. For example, data suggests that offering extended weekday hours is considerably more impactful than offering either Saturday or Sunday hours, so banks should likely consider cutting Saturday and Sunday hours before reducing extended weekday hours. Additionally, the positive impact of Sunday hours has declined the most since 2010, potentially making it the first option for banks to cut.
It is also important to note, however, that the negative impact of providing only standard operating hours (9:00-5:00 Mondays through Fridays) remains significant, although the negative impact has decreased over the past five years. This seems to suggest that banks should still consider offering either extended weekday OR weekend operating hours, but that they no longer need to offer both.
Lastly, as with any cost-cutting decision, banks must be strategic in their approach to reducing hours of operation. Some customers will likely react negatively to the change in routine, particularly certain demographic segments that rely more heavily on branch interaction. Data also finds that customer needs and expectations regarding branch hours varies widely by geography. In turn, banks must consider the unique needs of their different markets to help prioritize options for reducing branch hours.
Additional ideas for banks to consider may include:
Analyze traffic patterns across entire branch network to help identify branches that are the best candidates for reduction of hours and/or what types of reductions should be considered (should I trim extended weekday hours, Saturday hours, or Sunday hours??).
Develop a detailed marketing strategy to communicate any planned reductions in-advance of implementation, while also promoting any digital functionality that customers can use in-place of the branch (i.e., deposits via ATM or Mobile).
Use multiple channels (emails, direct mail and branch signage) to deliver the message.
As displayed in the chart below, a critical first step towards acquiring new customers and/or deepening product penetration is to improve brand awareness. In basic terms, a customer cannot open an account with a given bank if they don’t know the bank exists, or if the bank isn’t top-of-mind during the initial phases of the purchase funnel.
Data from the 2014 J.D. Power Retail Banking Satisfaction Study finds that this can be challenging for many institutions, particularly those characterized as Midsize Banks (those with $2 billion-$33 billion in deposits). For example, Bank L is a Midsize Bank headquartered in the Chicagoland area and has approximately 60 branches across three of Chicago’s primary counties (Cook, Lake and Will counties).
However, study data indicates that Bank L is currently struggling with brand awareness in its home market despite their strong network of branches within the Chicago area. Specifically, when shown a list of banks and asked to identify which they were aware of, only 31% of residents in the Chicago area selected Bank L.
In this case, improving brand awareness must be a key focus of any growth strategy for Bank L. Considerations should include, but not be limited to:
- Implementing a creative and effective overall marketing campaign: This can include marketing/advertising messaging delivered via multiple avenues (TV, radio, newspaper, direct mail). Additionally, secondary research finds that many banks are utilizing new and creative marketing ideas designed to not only improve awareness, but also help differentiate the brand from its peers. In many cases, these messages promote the idea of ‘community involvement’.
- Creating and maintaining a digital presence: When seeking to improve brand awareness, particularly amongst younger demographic segments, it is critical to maintain a digital presence to help attract potential customers. Social media sites such as Facebook and Twitter must be maintained and used to effectively promote the brand, the brand’s values and any pertinent promotions currently being offered. Additionally, banks must make effective use of their own website to effectively promote their values and promotional offerings.
- Measuring/tracking brand awareness and brand image metrics: Collecting and analyzing data can help institutions measure the effectiveness of campaigns designed to increase awareness. Additionally, measuring and tracking metrics related to brand image/perception (ie. ‘innovative vs. conventional’, ‘proactive vs. reactive’, etc.) can help direct the messaging content to deliver in marketing/advertising campaigns.
With increased functionality such as mobile phone check deposits, online chat, envelope-free ATM deposits, and image-enabled ATM receipts, retail banking customers are able to fully manage their account without ever stepping into a branch or contacting the call center. While this can create significant cost savings by reducing branch traffic and decreasing the number of calls to the call center, there is also a considerable downside, based on findings from the 2014 J.D. Power Retail Banking Satisfaction Study.
Despite having similar demographics and product portfolios, self-service customers—those who have interacted only via remote channels during the past 12 months for routine transactions—are not only less satisfied with their banking experience, but are also less committed than are those who have visited a branch or called the call center during the past 12 months for routine transactions. Further, self-service customers tend to be less engaged and, in fact, are often indifferent toward their bank, as a larger percentage of self-service customers say they “probably will” or “probably will not” recommend, reuse, and switch, compared with assisted customers.
Banks that are able to elevate customer commitment levels among self-service customers can benefit from improved overall financial performance. Specifically, banks that convert 2% of customers with low commitment and 5% of those with medium commitment into customers with high commitment stand to gain $1.68 million in interest revenue from greater deposits, investments, and loans per 100,000 customers.
Analysis of study data also finds that some banks are currently more successful at satisfying their virtual-only customers. For example, as displayed in the chart below, Bank K has the lowest overall satisfaction score amongst its virtual-only customers (720 on a 1,000-point scale). Meanwhile, Bank H has the largest percentage of virtual-only customers within their population (40%), making it especially critical for them to improve the overall experience of virtual customers.
Self-service customers have different priorities and needs than assisted customers, which makes it essential for financial institutions to adjust their strategy in servicing these customers. Recommendations for additional areas of focus include:
- If you got it, flaunt it; if you don’t got it, get it. Channel features are important to this segment, and while banks often do offer the features customers want, many are unaware of them, so it is important to ensure features/services are fully marketed. Furthermore, banks should continually look to add features to meet the changing needs of customers and, in turn, to remain competitive.
- Be proactive, not reactive. Self-service customers place great importance on product offerings and tend to be critical of their bank’s value proposition; therefore, financial institutions need to proactively communicate with these customers and ensure they are aware of all product features/services and fully understand how and when fees will be incurred. Moreover, banks should consider implementing programs in which bank representatives and advisors proactively reach out to self-service customers to provide advice related to their financial needs.
- If it’s broken, fix it. It is critical for banks to minimize the occurrence of problems. To achieve this, banks should focus on reducing the problems that not only have the greatest impact on satisfaction and retention, but also those that occur most frequently. Banks need to collect and analyze customer and employee data to determine root causes of problems and revise processes that are ineffective or problematic. Furthermore, banks have an opportunity to improve their rates of problem resolution via remote channels. The level of service that is provided via all channels needs to be optimum; however, banks need to pay close attention to service levels by remote channels (email/online chat) ensuring consistent and effective resolution of issues. Additionally, banks need to understand which problems can’t be fully resolved using a remote channel and revisit policies and procedures to improve the effectiveness of these channels.
 High commitment is defined as providing combined ratings of 17-20 points based on responses to the four commitment statements; medium commitment is defined as providing combined ratings of 12-16 points based on responses to the four commitment statements; low commitment is defined as providing combined ratings of 11 points or less based on responses to the four commitment statements.
 Assumes a 3% interest margin
Data from the 2014 J.D. Power Small Business Banking Satisfaction Study finds that approximately one-third of small business banking customers also have a personal relationship with their primary business banking institution.
These types of ‘cross-functional’ relationships are beneficial for financial institutions. First and foremost, the institution is holding a greater overall ‘share-of-wallet’. Additionally, business banking customers with a personal account report significantly higher satisfaction, loyalty and advocacy metrics (compared to business customers who do NOT also have a personal relationship). However, analysis of study data finds that some banks are struggling to maximize the full ROI of a cross-functional relationship.
For example, as illustrated in the chart below, Bank A is currently not receiving the same positive ‘lift’ when their small business customers also hold personal banking accounts.
Additionally, study data finds that the ability for Bank A to cross-sell their small business customers on personal accounts is lagging peers.
There are many potential reasons why a small business owner is unwilling to hold personal accounts with their business banking institution, including but not limited to:
- Business institution may not be located near the customers home
- The customer has a long-standing relationship with their personal institution and is currently satisfied
- ‘Conflict of interest’ – some customers just want to separate their accounts
Regardless of the reason, the ability for the financial institution to provide excellent service and build trustworthy relationships is vital towards the goal of cross-selling business banking customers on personal accounts.
Within the retail banking industry, account initiation is often viewed as a key ‘moment-of-truth’. In many cases, the opening of an account/product/service is the first interaction between customer and a bank. Other times, account initiation represents an opportunity for banks to engage tenured customers in a discussion about their evolving financial needs.
As part of the 2015 Retail Banking Satisfaction Study, J.D. Power measures customer satisfaction with the opening of banking accounts, products and services. Specifically with regards to accounts that were opened in a branch, study data finds that customers are most dissatisfied with the experience opening checking and HELOC products. Conversely, new account satisfaction is highest among customers opening personal loans and CD’s.
There are different variables driving the high and low satisfaction scores for these products. For example:
-HELOC dissatisfaction is driven by complexity of the process, as customers opening these products are significantly more likely to say the process was ‘more complicated than expected’.
-The level of engagement between bank and customer is lowest for customers opening a checking account, which often leads to lower levels of product awareness/understanding. In turn, the lack of awareness drives lower satisfaction scores.
-Opposite of the experience reported by customers opening a checking account, those opening a personal loan/line of credit indicate that the branch representative was very thorough in assessing needs and was more likely to provide useful information during the interaction.
Understanding which aspects of account initiation are most troublesome for their unique customer base can help a bank implement necessary changes. In some cases, focus should be placed on simplifying processes. Other times, providing additional training/education to staff can help them more accurately assess customer needs and provide additional value during the interaction.
With channel usage continuing to evolve within the retail banking and small business banking industries, it is important for banks to focus on delivering a consistent experience across all customer touch-points. Customers interacting with the bank via the website or call center should receive the same level of high-quality service they receive at a branch, and vice versa. However, analysis of data collected by J.D. Power finds plenty of room for financial institutions to further improve the consistency of cross-channel interaction.
One key example is with regards to Problem Resolution. As displayed in the chart below, small business banking customers report considerable differences in their experience depending on the channel used for resolving a problem. While Problem Resolution satisfaction is highest when interacting with branch personnel (tellers, business bankers and managers), there is a steep decline when dealing with call center and online representatives.
Data in the chart above is from the 2014 J.D. Power Small Business Banking Satisfaction Study, but it is important to note that similar discrepancies in cross-channel interaction are evident in all financial services studies conducted by J.D. Power (retail banking, mortgage and investment). And these discrepancies are not always related to Problem Resolution, as many other aspects of the banking experience are also prone to cross-channel inconsistency, such as:
-Clarity of account information
-Method of accessing secure website (PC vs. tablet. vs. Smartphone)
As identified in the 2014 J.D. Power Small Business Banking Satisfaction Study, one key aspect of the small business banking experience is the relationship with an assigned account manager.
When an account manager is assigned to a small business client, building a strong relationship becomes vital. Ideally, the account manager becomes viewed as a ‘trusted advisor’, which can help the bank maximize the ROI (return-on-investment) of assigning account managers to small business clients. In addition to having a significant impact on customer satisfaction, account managers that are viewed as a ‘trusted advisor’ can also drive increased loyalty and deepen the share-of-wallet customers hold at the bank.
Furthermore, the negative impact of not being viewed a trusted advisor is profound, as satisfaction levels are actually lower than when no account manager is assigned at all (643 vs. 723, respectively, on a 1,000-point scale).
Data from the Small Business Satisfaction Study also identifies clear steps that small business account managers can take to develop a strong relationship with their clients and improve the perception of them as a trusted advisor, including:
-Take time to engage clients and understand their business
-Initiate contact with clients throughout the year to discussed needs and/or recommend solutions
-Promptly reply to any inquiries from clients and show ‘concern’ for their needs
The 2014 J.D. Power Small Business Banking Satisfaction Study was released on October 28th, 2014.