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).
While all businesses would likely consider customer satisfaction a ‘nice to have’, many question whether investments towards improving the customer experience will actually result in a positive impact on the bottom-line. Across multiple industries, analysis of consumer data collected by J.D. Power shows a clear relationship between high customer satisfaction and improved financial indicators.
Specifically within the retail banking industry, highly satisfied customers tend to hold a greater share-of-wallet with the institution and also report significantly higher scores related to loyalty and advocacy.
Data from the first three fielding periods of J.D. Power’s 2014 Retail Banking Satisfaction Study finds that customer satisfaction is at its highest level since the study originated in 2007. This is consistent with data from other industry sources, which also identifies improvements across the customer experience.
The improvements in retail banking satisfaction also mirror trends in customer sentiment, as consumers continue to feel more positive about the economy and their personal financial outlook. Similar trends have previously been noted in J.D. Power’s Full-Service Investor Study, which also sees a relationship between economic prosperity and customer satisfaction.
The full publication of the 2014 Retail Banking Satisfaction Study, which will include aggregated data from all four fielding periods, releases on April 29th, 2014.
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.
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.
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.
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.
Data from the 2013 U.S. Retail Banking Satisfaction Study finds that satisfaction and loyalty metrics among Affluent customers are lagging those of Non-Affluent customers. In turn, financial institutions are jeopardizing their ability to deepen the share-of-wallet they hold with their most valuable segment of customers.
Contrary to findings within the retail banking segment, data from the 2013 Full Service Investor Study finds that Affluent investors are significantly more satisfied than Non-Affluent Investors (818 vs. 785, respectively), leading to lower levels of intended attrition. Therefore, financial institutions have an opportunity to identify the drivers of Affluent customer satisfaction from the wealth management experience and translate them into the retail banking experience.
For example, Affluent customers are considerably more satisfied with the Fees and Product Offerings associated with their investment relationship, as opposed to the Fees and Product Offerings associated with their retail banking relationship. Successful communication, often driven by the presence of an account manager, helps raise pricing-related satisfaction within the wealth management industry. Additionally, financial institutions may want to consider revisions to their lineup of retail banking products/services to better align with the specific needs of Affluent customers, which tend to be more complex.
Data from J.D. Power’s retail banking study finds that 34% of Big Bank customers are within the Generation Y age segment, which is significantly higher than the percentage of Generation Y customers at Regional/Midsize/Community Banks.
And while the Generation Y segment is currently less-affluent than other segments, they do present potential bottom-line growth as their income levels increase and they enter the market for mortgages, education plans for children, loans, etc.
The ability of Big Banks to provide functional ‘digital banking technology’ (website, mobile, advanced ATMs) is attractive to tech-savvy younger customers, and smaller institutions need to be competitive in this space in order to ‘steal’ younger customers from Big Banks.
Retail 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.
A decision to switch banks is often driven by a mix of frustration with the previous bank and attractive offerings from the new bank.
Attracting new business within the retail banking industry is unique. While there are several variables that can “pull” customers toward a new bank, data from our J.D. Power and Associates 2013 Retail Banking Satisfaction StudySM has found that customers generally will not switch banks unless they are also “pushed” away from their prior relationship.
While poor service and high fees are most likely to push customers away, branch convenience, promotions and recommendations help to attract customers to a new bank.
What are you doing to protect your current relationships?
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
Date: Wednesday, July 24
Time: 2:00 – 3:00 PM ET
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.