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.
Financial institutions often have staffing and queueing models in-place to minimize customer wait times and improve the efficiency of interactions. However, there are still instances where customers are forced to wait in-line at a branch or are placed on-hold before speaking to a call center representative. When traffic is high and customer wait/hold times are necessary, financial institutions can offset wait-time dissatisfaction by providing quality service once the interaction begins.
For example, the chart below looks at call-center satisfaction among credit card customers that waited at least five minutes before speaking to a call center representative. On average, all credit card customers waiting five minutes before speaking to a rep. have a satisfaction score of 775 (on a 1,000-point scale). However, when a customer waits five minutes and is then greeted in a friendly manner by their call center rep., satisfaction increases to 795. And when a customer waits five minutes, is greeted in a friendly manner and the phone rep had their account information ready prior to joining the call, satisfaction increases further to 827. Finally, satisfaction increases even more when the rep. offers additional assistance and thanks the customer for their business – when all four best practices displayed in the chart below are provided, satisfaction among customers waiting five minutes increases from 775 to 835.
Source: 2014 J.D. Power Credit Card Satisfaction Study
Similarly, among retail banking customers, simply greeting customers as they enter the branch can significantly improve satisfaction with wait-times in the teller line. In the chart below, satisfaction among customers who waited 3-4 minutes but received a greeting when entering is 8.60 on a 10-point scale, which is higher than customers that did not have to wait but did not receive a greeting when entering the branch (8.39).
Source: 2014 J.D. Power Retail Banking Satisfaction Study
Each year, J.D. Power surveys over 80,000 retail banking customers as part of the annual Retail Banking Satisfaction Study. The study is conducted via four quarterly fielding waves.
While the primary focus of the study is the customer experience and it’s impact on satisfaction and loyalty metrics, J.D. Power also collects and analyzes data related to consumer sentiment (i.e. ‘your outlook for our economy and ‘your personal financial outlook’).
Data from the first two fielding waves of the 2015 Retail Banking Satisfaction Study (collected in April 2014 and July 2014) finds that the outlook for the American economy continues to trend upward. In fact, there has been a consistent improvement in economic outlook since 2011, as the country moves further past the economic distress that originated in 2007/2008.
However, it is interesting to note how perceptions of the country’s economic outlook varies across the different geographic regions:
California customers are currently most optimistic, while customers in the South Central region are least optimistic.
Over the past 18 months, the outlook for the economy has improved the most among customers in the Northwest region, and improved the least among customers in the Southwest region.
Since 2011, the California and Northwest regions have seen the greatest improvements while the South Central region has seen the smallest improvement.
For reference, the regional definitions associated with the Retail Banking Satisfaction Study are displayed in the graphic below.
Data from the J.D. Power 2014 Retail Banking Satisfaction Study finds that the industry continues to improve upon their ability to prevent problems. In fact, overall problem incidence has declined every year since 2010.
However, data also finds that problem incidence tends to be highest among retail banking customers that are both ‘young’ and ‘wealthy’. For example, over one-fourth (26%) of Affluent Gen Y customers have experienced a problem with their personal banking institution in the past 12 months.
Perhaps more importantly, these young and wealthy customers are less tolerant of perceived ‘problems’ with their current institution – when a problem occurs, they are considerably more likely to say that they ‘definitely/probably will switch’ banks in the next 12 months.
Young customers, such as those in the Gen Y age segment represent tremendous ‘growth potential’ for financial institutions, particularly if they are already considered to be ‘Affluent’. It is critical for financial institutions to gain a deeper understanding of the problems that these valuable customers are most likely to experience and develop correction action plans to prevent additional problems in the future.
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.
Data from J.D. Power’s U.S. Retail Banking Satisfaction Study finds that younger investors have greater willingness to open investment accounts/products at their primary retail banking institution.
For example, among Affluent Investors, 37% of those in the Generation Y age cohort hold a mutual fund/annuity with their primary retail bank. Conversely, only 9% of Affluent Investors in the Pre-Boomer age cohort hold a mutual fund/annuity with their primary retail bank.
On one hand, this could be good news for ‘banking’ institutions looking to increase their share of investable assets held. On the other hand, traditional ‘investment-only’ institutions may be at risk of losing valuable asset share moving forward.
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.
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).