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
Data from the 2015 J.D. Power Retail Banking Satisfaction Study (released last week) finds that acceptance of digital channel functionality continues to grow, particularly within certain demographic segments (such as Gen Y and Gen Z). However, data also finds plenty of evidence to support the hypothesis that ‘branches still matter’.
For starters, despite some declines in recent years, branch usage continues to be high. Over 3/4ths (78%) of retail banking customers have visited a branch in the past year, and these customers have visited a branch approximately 15 times in the past year.
Branches also remain a key channel for customers seeking to conduct a ‘moment-of-truth’ transaction such as opening an account or resolving a problem. Additionally, of the six interaction channels measured, the branch is statistically proven to carry the greatest ‘weight’ on overall satisfaction. This is particularly noteworthy when considering that customers only visit a branch approximately 15 times per year, compared to approximately 67 website visits per year. In other words, a typical branch interaction is considerably more impactful than a typical website interaction. In response to this, it is critical for banks to make sure that each branch transaction is an especially satisfying experience for the customer.
Lastly, branches provide banks with an important opportunity to engage customers and build loyalty that may lead to future cross-sell opportunities. Providing value-add services such as offering help with other financial needs, or proactively reviewing accounts and recommending alternative options, are difficult to provide customers who choose to interact solely via digital banking channels. Therefore, it remains important for banks to properly train and coach their employees to identify the correct opportunities for offering value-add services to customers visiting a branch.
Key questions for banks to ask themselves:
- Are you consistently (and effectively!) tracking and monitoring employee performance on in-branch transactions?
- Are you utilizing tracking metrics to reward employees for good performance and/or identifying certain branches or markets with the greatest room for improvement?
- Are you investing in ongoing training/coaching/mentoring that will educate employees on products and services and improve their ability to strategically identify opportunities to offer ‘value-add’ services?
- Are you hiring employees to fit the ‘value proposition’ you advertise/promote?
Released this week, J.D. Power’s annual measurement of the retail banking industry finds that customer satisfaction is at its highest level since the study originated in 2005. As displayed in the chart below, industry satisfaction has reached 790 (on a 1,000-point scale), representing a significant increase from the 785 reported in April 2014.
Analysis of study data identifies different drivers of improved satisfaction across the different bank size segments. For example, Regional and Midsize Banks saw large increases in satisfaction with Problem Resolution, while Big Banks saw their largest increases with regards to Fees and Call Center Interaction.
Despite the positive news, banks must maintain their focus on the customer experience. On one hand, several opportunities for improvement remain, such as:
- Fee-related problems remain prevalent so continued focus on transparent product and pricing education is necessary
- ‘Engagement’ metrics (i.e. account initiation) that can help deepen relationships and obtain additional share-of-wallet are inconsistent across brands and certain customer segments
- Keeping up with constantly evolving consumer preferences/behaviors/demands, such as online account initiation and online problem resolution, are creating challenges for many banks
In addition to benchmarking brand-level performance on key aspects of the customer experience, the study also provides valuable insights into overall industry topics including, but not limited to:
- The emergence of new customer segments which are driven by transactional behavior (i.e. ‘virtual-only customers’)
- Capitalizing on the potential of customer growth segments such as Gen Y and Gen Z
- Evolution of the branch experience
Finally, the airline industry provides an interesting parallel to the current state of customer satisfaction within the banking industry. Data from the 2014 J.D. Power North American Airline Study finds that customer satisfaction with airlines is also at its highest level since 2006, however, many people who have traveled recently could quickly identify a few aspects of their experience that could be improved. With this in-mind, banks should acknowledge the positive strides made over the past several years with regards to customer satisfaction, but understand that many opportunities for further improvement remain which can have a significant impact on both short-term and long-term financial growth.
Note: Big Banks are defined as those 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.
Driven by the adoption of mobile banking and increased functionality of the website and ATM channels, a new segment of ‘virtual’ retail banking customers is emerging (those who only interact via digital channels). These customers have unique preferences and expectations that can present challenges to banks attempting to improve satisfaction and loyalty metrics. Data from the first three fielding waves of the 2015 J.D. Power U.S. Retail Banking Satisfaction Study can help banks understand the different segments of retail banking customers, and identify how the customer experience may differ from one segment to the next.
For example, study data finds that the negative impact of fees is considerably greater among virtual-only customers (compared to customers who only transact via the branch and ATM). Furthermore, virtual-only customers are more likely to incur certain fee charges and are less likely to indicate that their minimum-balance requirement is reasonable.
Based on these findings, banks can develop strategies designed to improve the fee experience amongst their virtual customer base:
- Clearly illustrate the ‘value’ that customers are receiving in exchange for the fees they pay. For example, in exchange for a given fee, virtual-only customers are receiving a highly functional website and mobile app that allow them transact with the bank in their preferred manner.
- Invest resources in improving aspects of the customer experience that may improve the ‘value proposition’ perceived by virtual-only customers.
- Focus on fee and product education, which may be especially difficult for virtual-only customers who may not visit a branch to receive a face-to-face explanation.
- Consider proactive account reviews of virtual-only customers to ensure that customers are aligned to the correct account. If a better option exists, proactively contact the customer with an alternative product that will benefit them.
The complete 2015 J.D. Power U.S. Retail Banking Satisfaction Study (with all four waves of data) publishes on April 28th.
There is a strong relationship between satisfaction and financial outcomes. Specifically, retail banking customers with high levels of satisfaction (overall scores of 900-1,000) have significantly higher advocacy rates, stronger loyalty, and greater share of wallet than customers with low satisfaction (scores of 700 and lower).
By making a concerted effort to enhance the overall customer experience, banks that are able to achieve high levels of satisfaction stand to benefit from stronger bottom-line growth and improved overall financial performance:
- Achieving a 50-point improvement in customer satisfaction leads to an increase in deposits, loans, and investment dollars equating to a 6% increase in revenue, or $27 million per 500,000 customers.1
- Higher levels of satisfaction are also tied to improved brand perceptions. Customers with high levels of satisfaction (900+) provide an average rating of 6.5 (on a 7-point scale) for the Brand Image attribute Good reputation vs. 6.0 for customers with satisfaction scores of 800-899. The ratings decline to 5.4 among customers with satisfaction scores of 700-799, and to 4.4 among customers of banks with scores below 700.
- Banks that recognize the value of customer satisfaction programs—as measured based on subscription to the U.S. Retail Banking Satisfaction Study, 2010-20142—show greater improvement, compared with non-subscribers, in not only satisfaction (+49 points vs. +30 points, respectively), but also in metrics measuring loyalty (+8 percentage points vs. +4 percentage points); advocacy (+8 percentage points vs. +3 percentage points); and retention (+8 percentage points vs. +3 percentage points).
1 Assumptions: Deposits and share of wallet is self-reported. Interest margin for deposits and borrowing accounts is 3% and 1% for investments. Service charges on deposit accounts = .23% of deposits
2 Subscribers are those banks who subscribed to the J.D. Power Retail Banking Satisfaction Study in at least 3 of the last 5 years (2010-2014).
Source: J.D. Power U.S. Retail Banking Satisfaction Study
Profit margins remain a considerable challenge for retail banks, driven largely by regulatory pressures, low interest rates and the decline of fee-related revenue streams. In response to this, banks are continuously looking for cost-cutting opportunities.
Data from the first three fielding waves of the 2015 J.D. Power Retail Banking Satisfaction Study suggests that reducing branch operating hours could be an attractive option for banks looking to trim operating costs. For starters, branch traffic has been declining the past several years, driven mainly by the digital functionality now available via Mobile, ATM and Website interaction channels.
Analysis of study data also finds that the positive impact of providing extended weekday or weekend hours has declined significantly since 2010. For banks looking to reduce operating hours, the chart below may help prioritize their options. For example, data suggests that offering extended weekday hours is considerably more impactful than offering either Saturday or Sunday hours, so banks should likely consider cutting Saturday and Sunday hours before reducing extended weekday hours. Additionally, the positive impact of Sunday hours has declined the most since 2010, potentially making it the first option for banks to cut.
It is also important to note, however, that the negative impact of providing only standard operating hours (9:00-5:00 Mondays through Fridays) remains significant, although the negative impact has decreased over the past five years. This seems to suggest that banks should still consider offering either extended weekday OR weekend operating hours, but that they no longer need to offer both.
Lastly, as with any cost-cutting decision, banks must be strategic in their approach to reducing hours of operation. Some customers will likely react negatively to the change in routine, particularly certain demographic segments that rely more heavily on branch interaction. Data also finds that customer needs and expectations regarding branch hours varies widely by geography. In turn, banks must consider the unique needs of their different markets to help prioritize options for reducing branch hours.
Additional ideas for banks to consider may include:
Analyze traffic patterns across entire branch network to help identify branches that are the best candidates for reduction of hours and/or what types of reductions should be considered (should I trim extended weekday hours, Saturday hours, or Sunday hours??).
Develop a detailed marketing strategy to communicate any planned reductions in-advance of implementation, while also promoting any digital functionality that customers can use in-place of the branch (i.e., deposits via ATM or Mobile).
Use multiple channels (emails, direct mail and branch signage) to deliver the message.
As displayed in the chart below, a critical first step towards acquiring new customers and/or deepening product penetration is to improve brand awareness. In basic terms, a customer cannot open an account with a given bank if they don’t know the bank exists, or if the bank isn’t top-of-mind during the initial phases of the purchase funnel.
Data from the 2014 J.D. Power Retail Banking Satisfaction Study finds that this can be challenging for many institutions, particularly those characterized as Midsize Banks (those with $2 billion-$33 billion in deposits). For example, Bank L is a Midsize Bank headquartered in the Chicagoland area and has approximately 60 branches across three of Chicago’s primary counties (Cook, Lake and Will counties).
However, study data indicates that Bank L is currently struggling with brand awareness in its home market despite their strong network of branches within the Chicago area. Specifically, when shown a list of banks and asked to identify which they were aware of, only 31% of residents in the Chicago area selected Bank L.
In this case, improving brand awareness must be a key focus of any growth strategy for Bank L. Considerations should include, but not be limited to:
- Implementing a creative and effective overall marketing campaign: This can include marketing/advertising messaging delivered via multiple avenues (TV, radio, newspaper, direct mail). Additionally, secondary research finds that many banks are utilizing new and creative marketing ideas designed to not only improve awareness, but also help differentiate the brand from its peers. In many cases, these messages promote the idea of ‘community involvement’.
- Creating and maintaining a digital presence: When seeking to improve brand awareness, particularly amongst younger demographic segments, it is critical to maintain a digital presence to help attract potential customers. Social media sites such as Facebook and Twitter must be maintained and used to effectively promote the brand, the brand’s values and any pertinent promotions currently being offered. Additionally, banks must make effective use of their own website to effectively promote their values and promotional offerings.
- Measuring/tracking brand awareness and brand image metrics: Collecting and analyzing data can help institutions measure the effectiveness of campaigns designed to increase awareness. Additionally, measuring and tracking metrics related to brand image/perception (ie. ‘innovative vs. conventional’, ‘proactive vs. reactive’, etc.) can help direct the messaging content to deliver in marketing/advertising campaigns.
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
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