Many banking institutions are evaluating their current fee structures and considering modifications in an attempt to drive bottom-line improvements, while also acknowledging the potential ‘fallout’ that can arise from a change to fee structures.
Using data from the U.S. Retail Banking Satisfaction Study, J.D. Power has analyzed the topic of fees from multiple angles. Among other things, prior analysis related to the topic of fees has found that:
- The ‘negative impact’ of monthly maintenance fees has been decreasing within the retail banking industry, indicating that customers are becoming slightly more ‘accepting’ of monthly fees.
- Many customers pay a higher-than-average fee, yet remain highly satisfied. This is driven by the delivery of a clear ‘value proposition’ from their bank (the customer feels that the benefits they receive from the bank outweighs the cost).
- When implemented, fee changes represent a significant risk for banking institutions. Problem incidence will increase, driving an increase in labor costs associated with problem resolution. Intended attrition also increases, especially within the first month after a change.
When considering whether or not to increase/decrease monthly fees associated with checking accounts, it is important for banks to fully weigh the pro’s and con’s of the change. On one hand, an increase in the percentage of customers charged a fee (or an increase in actual fee amounts) can positively impact revenue.
However, as displayed in the chart below, data finds that banks who position themselves as a ‘low cost’ institution enjoy bottom-line benefits such as lower ‘cost-to-serve’, greater loyalty and greater share-of-deposits. Additionally, customers of ‘low-cost’ banks are significantly less likely to open additional accounts/products outside of the bank.
The decision to implement/increase/decrease fees should be unique for each and every banking institution depending on their overall strategic plans. It is critical, however, that they fully understand all potential ‘tradeoffs’ for any decision that is implemented. Analysis of consumer behavior and customer satisfaction data can be an extremely valuable tool to use when determining the appropriate cause of action.
The 2014 J.D. Power Primary Mortgage Servicer Satisfaction Study published on July 29th, and customer satisfaction has improved significantly compared to 2013 study results (index score of 754 vs. 733 in 2013).
Analysis of this year’s study data has identified a new ‘Key Performance Indicator’ – whether or not a website visitor was able to resolve the reason for their visit entirely via the website.
Mortgage servicers that are able to provide their customers with a highly functional website can help minimize the number of ‘personal contacts’ received by a call center, in a branch, etc. In fact, 38% of customers visit the website in an attempt to resolve an issue or answer a question before they contact customer service.
An additional Key Performance Indicator related to the website is the ability for customers to easily locate all information and website features, which can also have an impact on minimizing ‘labor costs’. The inability for customers to find information or specific features is similar to not providing the information/features at all – eventually the customer will need to engage in a personal interaction to obtain the needed information or an answer to their question.
It is important for mortgage servicers to allocate potential investment dollars on improving website ‘range of services’ while also focusing on ‘clarity of information’ and ‘ease of navigation’. Successful implementation of these best practices can improve customer satisfaction while simultaneously decreasing labor costs associated with answering simple questions or resolving issues/problems.
Full-service investment firms looking to maximize the ROI of proactive outreach to their clients should be aware that the ‘demand’ for proactive outreach varies considerably by demographic segment. In other words, developing proactive outreach programs should not be viewed with a ‘one-size-fits-at-all’ approach.
The graphic below, which is based on data from the 2014 J.D. Power Full-Service Investor Study, looks at investors that are ‘highly satisfied’ with the Account Offerings available at their firm. While highly satisfied ‘Affluent’ investors report an average of 9.9 contacts from their advisor, and 7.2 contacts from their firm, high satisfaction among investors in the ‘Mass Market’ and ‘Mass Affluent’ segments can be maintained with less frequent outreach.
Understanding the differing levels of service that drive investor satisfaction may help firms create communication strategies that meet client needs, while also managing the costs associated with proactive outreach. It is also important to note that investors across different demographic segments have different preferences with regards to the channel used for communication, and the types of information that should be provided to them proactively.
Data from three fielding waves of the 2014 J.D. Power Credit Card Satisfaction StudySM finds that the percentage of credit card customers ‘switching’ their primary card has increased significantly over the past year. More specifically, there is a significant increase in the percentage of customers opening a new credit card account (46% vs. 41% in 2013).
The increase is driven by ‘revolvers’ (customers that typically pay less than their total monthly balance), who cite ‘rewards’ and ‘lower interest rates’ as their primary reasons for switching.
With the competition for capturing ‘share-of-spend’ increasing, it is important for credit card issuers to improve the customer experience in an effort to improve loyalty. One key focus area is ‘rewards’, which have become a key driver of both acquisition and spending habits. In response, issuers must provide attractive offerings, market them effectively and ensure that their customers are aligned into the appropriate programs and card products. Additionally, the creation and marketing of successful rewards programs may also improve acquisition metrics by enticing competitor customers to switch their primary card.
The full 2014 J.D. Power Credit Card Satisfaction StudySM, including data from all four fielding waves, releases in August, 2014.
By definition, self-directed investors tend to have a less ‘personal’ relationship with their investment firm compared to other investors. Because of this, there is less opportunity for firms to personally engage clients and educate them on available products and services, thereby placing greater importance on the onboarding phase of the relationship. Firms that can successfully onboard new clients stand to benefit from improved satisfaction that may ultimately lead to increased loyalty and propensity to invest.
Educating new clients on the tools and resources available to them is a primary goal of the onboarding process. Data from the 2014 J.D. Power and Associates Self-Directed Investor Study finds that increasing awareness (and usage) of available tools can significantly increase investor satisfaction.
Study findings also indicate that encouraging customers to use one set of tools drives increased awareness and usage of additional tools. For example, familiarizing self-directed investors on basic tools, such as investing basics or budgeting tools, drives greater usage of more advanced tools such as asset allocation or financial planning.
Data from waves 1-3 of the 2014 U.S. Credit Card Satisfaction Study finds that industry satisfaction (776 on a 1,000-point scale) has increased significantly since the 2013 study was published last August (767).
This continues a trend seen in other 2014 Financial Services studies conducted by J.D. Power – the Retail Banking, Full-Service Investor and Self-Directed Investor studies all saw significant improvements in customer satisfaction.
The complete Credit Card Satisfaction Study, including all four waves of data collection, publishes on August 26, 2014.
With the continued acceptance of digital banking channels, it is important for financial institutions to ‘keep up with the times’. Even banks that promote personal service as a key part of their value proposition need to devote investment resources to their digital channels. Failure to do so may put the bank at risk of losing customers that represent future growth potential (ie. Millennials), who have already shown a preference for digital interaction.
Data from the 2014 Retail Banking Study provides an interesting case study on the impact of investing in digital channels. As shown in the graphic below, ‘Bank A’ has been investing heavily in digital channels while ‘Bank B’ has not. Bank A has seen a greater lift in customer satisfaction, driven by their technology improvements. It is also important to note that, despite a heavy investment in digital interaction, Bank A has also been able to significantly improve the branch experience.
The chart below provides further evidence of the impact of investing in digital channels, as interaction scores for Bank A are significantly higher than those at Bank B. Additionally, the negative ‘gap’ in digital satisfaction between Bank B and the industry average has widened considerably.
Finally, the real impact of investing in digital channels is shown below, as Bank A has seen their key loyalty and advocacy metrics improve, while Bank B has seen declines.
Data from J.D. Power’s 2014 Retail Banking Satisfaction Study finds that customers are becoming more tolerant of monthly maintenance fees.
2014 study data finds that Fees satisfaction among customers paying a fee has increased to 594 (on a 1,000-point scale), which is significantly higher than 2013 study findings. Furthermore, the increase in satisfaction is especially profound among Affluent Retail Banking Customers.
Banks are doing a better job of illustrating their ‘value proposition’, which has helped mitigate dissatisfaction with fees. In other words, customers have a better understanding of the services and features available to them for the price they are paying.
In addition to illustrating the associated value, other drivers of Fees satisfaction include:
- Ensuring that customers ‘completely’ understand the fees associated with their account
- Ensuring that customers are aware of available fee discounts/waivers
- Maintaining stable fee structures associated with accounts
Data from the 2014 Retail Banking Satisfaction Study was released to subscribers on April 29th, 2014.
Data from the 2014 JD Power Full-Service Investor Satisfaction Study finds a significant increase in the number of investors reporting that their portfolio performance was ‘better-than-expected’ (driven by healthy market performance throughout 2013). Accordingly, overall investor satisfaction also improved significantly, as good financial performance tends to drive investor satisfaction.
However, history tells us that market performance fluctuates and that a ‘downturn’ is likely at some point in the future. In preparation for this, financial institutions and advisors should identify behaviors that can help mitigate dissatisfaction with ‘poor’ portfolio performance. In turn, minimizing dissatisfaction may help prevent investor attrition and/or the transfer of assets to competitors.
Once the behaviors are identified, focus should be placed on implementing new processes and/or training programs to ensure that the institution and its advisors are capable of providing the optimal level of service to their clients.
Key methods of minimizing investor dissatisfaction with ‘poor’ portfolio performance include:
Building a strong ‘advisor-investor’ relationship
Developing a clear financial plan
Discussing and incorporating risk tolerance
Clearly communicating reasons for investment performance
Past analysis conducted by J.D. Power has found that mergers and acquisitions, if not managed properly, often result in significant declines in both customer satisfaction scores and Brand Image ratings. From the very beginning, customers of the acquired bank are likely to have negative perceptions of the brand to which they’re forced to switch, which amplifies any tactical problems that arise from the adoption of new banking policies, processes, and products.
Prior analysis has also found that retail banking customers typically react negatively to change, particularly when it disrupts their previous pricing structures or general routines. While fee changes are a major source of frustration among customers during a merger/acquisition, simple developments such as changes to online banking, account statements, and product services/features are also causes of frustration. Acquired customers experience more problems than current customers as they struggle to familiarize themselves with the processes and culture of a new financial institution.
Data from the 2013 Retail Banking Satisfaction provides a good case study to examine the potentially disruptive impact of M&A activity. BMO Harris had purchased M&I in 2010, and the conversion process lasted until late 2012. In turn, the 2013 Retail Banking Study found that BMO Harris experienced the largest declines across the industry for both overall satisfaction and the Brand Image rating for Good reputation.
Further, the impact of the merger on both Brand Image ratings and satisfaction scores was more pronounced in certain segments of BMO Harris Bank’s customer base, including geographic location. Given that M&I was headquartered in Milwaukee, it is not unexpected that customer frustration with the merger was significantly more negative in Wisconsin than in Illinois or within the Chicago CSA, which is the home market of BMO Harris. Additionally, decreases in both Brand Image ratings and satisfaction scores were larger among different demographic segments at BMO Harris.
However, data from the first three fielding waves of the 2014 Retail Banking Study shows that BMO has done a solid job of addressing the initial problems and taking corrective action to improve the customer experience. Whereas their overall satisfaction score had decreased by 55 index points in the 2013 study, the first three waves of the 2014 study finds that BMO’s score has rebounded significantly (increase of 45 index points).