The Impact of Fee Changes in Retail Banking

Strapped with a wide range of financial burdens, it is tempting for financial institutions to consider pricing changes in an attempt to improve bottom-line performance. However, any changes must be weighed carefully, and the potential business threats must be clearly understood.

Data from JD Power’s Retail Banking Satisfaction Study finds that Overall satisfaction declines significantly when fee changes are implemented, and more importantly, intended attrition levels are three times higher among customers that experience a fee change, compared to those whose fees remain stable.

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Pricing changes can also be costly to banks if not handled effectively, through the allocation of resources required to handle customer complaints related to the change. Nearly one third (32%) of customers that experience a fee change contact their bank with a problem and, on average, problems require 1.9 customer contacts to be resolved. Therefore, for every 100,000 retail banking customers that experience a fee change, bank personnel will receive 60,800 contacts. In comparison, for every 100,000 retail banking customers that do not experience a fee change, bank personnel will receive 19,000 contacts.

Estimating that bank representatives can handle 6.5 customer contacts per hour, and that their labor cost is $40 per hour, fee structure changes may result in an incremental labor cost of $257,231 for banks to absorb.

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Although data suggests that fee changes have a lagging effect on customer satisfaction (the full impact isn’t recognized until months after the change was made), intended attrition is impacted immediately, as customers tend to ‘overreact’ to a new charge. Therefore, it is particularly critical for financial institutions to minimize the initial bitterness experienced by customers, as this time period represents the greatest risk of attrition.

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Lastly, failing to ensure that all customers are fully aware of a fee change in advance can significantly impact customer satisfaction, loyalty and problem metrics. In order to successfully mitigate this problem, banks need to focus on over-communicating the change to ensure the message is fully received by their customer base

Financial institutions should begin the process of communicating fee changes immediately after the decision has been made. The appropriate messaging and delivery methods must be identified, and investing in quantitative or qualitative market research to aid in decisions should be considered. Lastly, the timeframe of the change must kept top-of-mind. Initial communications should begin months before implementation, and because the risk of customer attrition is highest within the first month after a pricing change, banks should place heavy focus on preparing all types of employees on how to handle any immediate backlash from customers.

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Maximizing the ROI of Credit Card Communications

Credit card issuers need to ensure that proactive outreach campaigns directed at current customers fit the evolving ‘digital world’. Failure to do so may not yield a positive return on the resource expenditures associated with customer communications.

Data from the 2013 Credit Card Satisfaction Study finds that nearly half (46%) of credit card customers did not read/use the most recent proactive communication they received from their issuer, thereby pointing to a potential ‘waste’ of resources spent by card issuers.

However, study findings show that the method used to deliver communications may have a positive impact on whether customers choose to read/use the information. For example, customers are most likely to read/use information provided electronically (emails and text messages), and are least likely to read/use information delivered by standard mail.

Issuers should consider revisions to their communication strategies, focusing on digital delivery of messages. This may also require issuers to rethink the content of their messaging and focus on delivering information in a more concise manner.

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Financial Impact of Reducing Problems among Credit Card Customers

Problem prevention should be a focus area for all credit card issuers. Analysis of data from the 2013 Credit Card Satisfaction Study finds that when customers experience a problem, overall satisfaction and customer retention metrics decline significantly.

Preventing the occurrence of problems may also help reduce operational costs. For every 1-percentage-point reduction in problem incidence, issuers may be able to save nearly $230,000 for every 1 million cardholders.

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Issuers should consider the implementation of a problem tracking or problem management systems. Problem tracking provides continual analysis of problem-related customer contacts, potentially helping issuers identify and prioritize processes that can minimize the occurrence of problems. Problem management may include multiple inputs, such as problem contact data, survey data and employee feedback, and is designed to guide issuers on the development of systems to both prevent problems from occurring, and to maximize the effectiveness of resolving problems that do occur.

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Managing Staff Turnover

There was an article in American Banker last week titled “Big Ideas for Banks in 2014”, and one of the topics focused on the importance of retaining talented employees at bank branches. The article mentioned that high levels of employee turnover can hurt the ‘relationship’ between customers and the bank, which in turn can impact the bank’s ability to retain accounts.

This theme was also very evident in JD Power’s 2013 Small Business Banking Study (released in October 2013). Analysis of study data found that 43% of small business customers had their account manager changed during the past 12 months, and of those, 13% report that their account manager changed two or more times.The impact on satisfaction is significant, as shown in the chart below.

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More importantly, turnover of small business account managers can also have a significant impact on financial performance. Study data clearly shows that small business customers who experience account manager turnover report lower levels of intended loyalty and share of wallet held with the institution. Turnover of account managers also drives an increase in reported problems, which can also be costly for financial institutions through the allocation of valuable resources and labor time associated with problem resolution.

But while an ideal scenario is for financial institutions to keep account manager assignments stable over time, in reality, changes will occur for a variety of reasons. In those cases, there are some best practices that financial institutions can follow that may mitigate the negative impact of account manager changes:

First, it is important that institutions act quickly when account management changes. Customers who are affected by a change should be notified as soon as possible and introduced to their new account manager. Delaying the notification can ultimately have a negative impact on customers’ overall banking experience, especially customers who attempt to contact their account manager and learn they are no longer there.

Second, it is critical that newly assigned account managers reach out to their customers and schedule a time to meet with them. During this meeting, it is important for the new account manager to establish an understanding of the customer’s needs and expectations (e.g., how often customers want to meet, what communication method customers prefer).

Third, new account managers must ensure they are providing the most appropriate solutions based on the customer’s business needs. They must be responsive to customer contacts, responding on the same day of the contact, if possible, and proactively reaching out to customers at least once every three months.

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Is Mobile Catching on Fast In Canada?

canadaRetail banking customers in Canada have high expectations when it comes to using technology to conduct their banking business. Banks may not be meeting these expectations, especially in mobile, which may be driving the lower ratings for innovation provided by customers. According to our J.D. Power & Associates 2013 Canadian Retail Banking Customer Satisfaction StudySM, in 2013, 58 percent of customers perceive their bank as being technologically innovative, down from 66 percent in 2012.

While mobile penetration is not catching on as fast in Canada, compared with the United States (8% vs. 18%, respectively) banks could help raise mobile banking penetration and customer satisfaction by improving their mobile offerings. Providing a mobile banking option is critical in migrating routine transactions, especially deposits, out of the branch, helping to reduce bank costs while providing convenience for customers.

According to our study, during the past 12 months, mobile banking customers in Canada have used mobile to conduct a banking transaction 33 times, on average, compared with 51 times in the United States. Transactions may include making a deposit, transferring money from one account to another, finding a location, checking an account balance or paying a bill, depending upon the services offered by the bank.

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Looking Ahead: Retail Banking in 2014

As the retail banking landscape continues to evolve, banking organizations need to always be tuned in to what customers expect from their bank and how they can provide them with a more satisfying banking experience.

As our J.D. Power Retail Banking Satisfaction Study moves to quarterly fielding and reporting for the 2014 study, banks are now better able to track their success with satisfying customers throughout the entire year!

The first quarterly wave of the 2014 Retail Banking Satisfaction Study was fielded in April 2013 and will be published on Tuesday, July 23rd.

We invite you to join us for a complimentary webcast during which we will discuss key findings from this study and address the following topics:

  • How customers are interacting with their bank
  • Trends in customer satisfaction and loyalty
  • Changes we are seeing since the publication of the 2013 results

Webcast Details

Date:  Wednesday, July 24

Time:  2:00 – 3:00 PM ET

Register-Now-

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Big Banks Make Big Gains in Customer Satisfaction

Overall customer satisfaction with retail banks improved significantly from 2012, largely a result of improvements made by big banks,(1) according to our J.D. Power and Associates 2013 U.S. Retail Banking Satisfaction StudySM released today.

“Many of the big banks have made great strides in listening to what their customers are asking for: reducing the number of problems customers encounter and, more importantly, improving satisfaction with fees,” said our own Jim Miller, senior director of banking here at J.D. Power and Associates

 Below are a few highlights from the study:

  • Fees have begun to stabilize and banks have helped their customers better understand their fee structures.  Satisfaction in this area has begun to rebound, and is up by 14 points this year from 2012.
  • One-third (33%) of customers say they “completely” understand their fee structure, compared with 26 percent in 2012.
  • Fees also have been a major source of customer problems and complaints. The stability in fees, coupled with banks placing more emphasis on preventing problems, has lowered the proportion of customers experiencing a problem by 3 percentage points year over year, to 18 percent in 2013.
  • While customers appreciate the personal service they receive at their branch, such transactions are slowly declining, while the numbers of online, ATM and mobile banking transactions are increasing.
  • As banks roll out envelope-free ATM deposits and deposits by mobile phone, customers are finding it easier to handle routine transactions without needing to visit their branch.

“Successful banks are not pushing customers out of the branch, but rather providing tools that make it easier to conduct their banking business when and where it is convenient for them,” said Miller. “Customers are quickly adopting mobile banking, making it a critical service channel for banks, not just a ‘nice to have’ option.”

For study results by region, view retail banking satisfaction rankings at JDPower.com

For more information on this 2013 U.S. Retail Banking Satisfaction Study, please contact Holly Zagresky at (248) 680-6319 or via email at Holly_Zagresky@jdpa.com

(1)Big banks are defined as the six largest financial institutions based on total deposits as reported by the FDIC, averaging $180 billion and above. Regional banks are defined as those with between $180 billion and $33 billion in deposits. Midsize banks are defined as those with between $33 billion and $2 billion in deposits.

 

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Three Social Media Goals Banks Can’t Ignore in 2013

social mediaSocial novices and mavens, what goals are you setting in 2013 to strengthen your social relationship with consumers? Consumers know what they want from their social media interactions with brands, but do you know how they are looking to engage?

To better understand this challenge, J.D. Power and Associates recently hosted an online research community.  Based on that research, three goals emerged that companies should focus on in 2013.

Download this complimentary J.D. Power Insight to  learn:

  • How consumers are looking to engage with brands
  • Which social efforts most grab consumers’ attention
  • How you can begin to make the most of your social efforts in 2013

download now

 

 

 

 

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Interact Better with Your Customers via Social Media – Coming Soon in the 2012 Social Media Usage Study

J.D. Power is committed to helping companies understand and navigate the rapidly changing landscape of social media. To that end, the 2012 Social Media Usage Study has been piloted to examine how consumers are currently using social media to interact with companies and to understand the current social media practices companies employ. To continue looking at how companies interact with consumers via social media, we will be releasing the comprehensive study, collaborating directly with businesses and consumers, in January 2013 that fully examines why and how consumers engage with companies via social media.

In the meantime, take a look at the topline findings from the study pilot in the whitepaper titled “Understanding the Impact of Social Media on Companies.”

Download the Whitepaper

What else would you like to see out of this study?

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