There may be a tendency for banks to overlook Gen Z customers, as they may appear less valuable to those banks that focus on current levels of household income and investable assets. However, banks may already be well-positioned to build relationships with Gen Z customers that may prove beneficial in the future.
Driven heavily by family history and word-of-mouth advocacy, Gen Z customers tend to be loyal to their primary financial institution (at the moment). This is positive news for banks, and they should create opportunities to engage and further educate Gen Z customers with the goal of establishing long-term relationships.
Satisfaction with Big Banks is highest among Gen Z customers, compared with Regional and Midsize Banks. This is driven largely by the ability of Big Banks to satisfy Gen Z’s preferences for digital channel interaction. Specifically, Gen Z customers have a strong preference for mobile interaction. It will be critical for smaller banks to at least ‘keep pace’ with the digital functionality offered by Big Banks in order to both acquire and retain Gen Z customers moving forward.
Banks should also consider marketing specific checking account features/benefits that resonate with Gen Z customers, such as account alerts, rewards programs and free transfers. Such offerings have a greater impact on Product Offerings satisfaction for Gen Z customers than among other generational groups.
Lastly, the method of communication should be tailored to the unique needs of Gen Z consumers – banks should consider digital outreach strategies such as email campaigns or text messaging, as opposed to delivery via standard mail.
Questions for banks to ask themselves:
- How well do you understand the unique needs/preferences/behaviors of customers in emerging growth segments such as Gen Z?
- Does your product set incorporate some of the features and/or benefits that tend to be most impactful for Gen Z customers? If so, how effectively are you marketing/promoting these offerings?
- Are your proactive outreach campaigns tailored to deliver the correct messaging to different segments? Are you delivering your messaging via channels that most resonate with different segments?
- How satisfied are your customers with your digital channel offerings? Are your brand’s satisfaction scores comparable to what is being seen at peer banks both large and small?
Note: J.D. Power defines generational groups as Pre-Boomers (born before 1946); Boomers (1946-1964); Gen X (1965-1976); Gen Y (1977-1995); Gen Z (1995-2004)
Note: Big Banks are defined as banks with $180 billion or more in total deposits; Regional Banks are defined as those with $33 billion-$180 billion in total deposits; Midsize Banks are defined as those with $2 billion-$33 billion in total deposits
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 U.S. Primary Mortgage Origination Study (released in November 2014) finds that mobile apps have an opportunity to emerge as an important interaction channel for customers.
Current usage is low, with only 8% of customers indicating that they used an app during the origination process. However, as shown in the chart below, over half (53%) of customers who have not used an app during the mortgage origination process would consider using one for their next home purchase or refinance. Specifically, customers would be most interested in using an app to check status (47%), review next steps (35%) and review/confirm loan details (34%).
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.
USA Today ran an interesting article last week entitled “Will Bank Branches Wither Away?” It always catches my eye when someone even suggests the demise of brick-and-mortar branches, even in this day and age of iPhones, Droids, ATMs, etc. The article does cover some interesting perspectives on how banks like Citibank are going greener by eliminating paper and other banks like Chase continue to expand branch presence into new geographies. So IS the branch going the way of the Dodo Bird and buggy whip? Not necessarily.
But the raison d’être of the branch has certainly evolved and reflects the changing needs and preferences of a more mobile and self-serving consumer population. In contrast to the ABA research quoted in the article, which reported 62% of customers prefer online versus only 20% branch, J.D. Power and Associates’ 2011 Retail Banking Study found a slightly narrower gap. In the 2011 study, preference to online was 52%, 23 percentage points higher than branch. While that still reflects a significant tilt towards online, it also shows that “…the report of the branch’s death was an exaggeration.” (our thanks to Mark Twain).
What role does the branch seem to play in today’s increasingly technological world? Continue reading ›