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
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.
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%).
Data from the J.D. Power 2014 Self-Directed Investor Satisfaction Study finds that customer satisfaction can be significantly impacted by improving the awareness and usage of website functionality.
For example, ensuring that customers are aware of ‘financial planning tools’ can improve Website satisfaction by 87 index points (on a 1,000-point scale). Taking it a step further, ensuring that customers actually use ‘financial planning tools’ can drive an additional improvement of 28 index points.
Awareness of website features can also vary widely across the different firms measured in the study. Therefore, it is critical for each firm to understand where their customers may require additional education on website functionality or additional encouragement to actually use certain features.
For firms that have already invested valuable resources in the development of website functionality, it is critical for them to educate their customers on the available offerings and encourage usage. Failure to do so may impact the ROI (return on investment) they receive from expenditures dedicated to the website. Effective marketing campaigns, website tutorials and personal demonstrations are some methods available to firms looking to increase website awareness and/or usage.
In an ideal scenario, credit card issuers would excel at servicing all aspects of the customer experience. However, data from J.D. Power’s Credit Card Satisfaction Study consistently finds that every credit card issuer has both strengths and weaknesses with regards to the level of service provided to their customer base.
And because no issuer has unlimited resources to devote towards improving the customer experience, determining which initiatives should receive top-priority becomes an important piece of strategic planning.
The 2014 Credit Card Satisfaction Study has identified 12 ‘Key Performance Indicators’ (KPI’s) which represent service behaviors that have the greatest individual impact on customer satisfaction. In other words, “if you can’t do everything right, make sure you are doing these things right.”
As a whole, the industry struggles most with educating customers on card terms (i.e. rates, fees, etc.) and simplifying the login process for online account access. Only 50% of credit card customers completely understand their credit card terms, and only 53% of customers report that it is very easy to login to their account. It is also important to note that these are two of the most impactful KPI’s, based on their potential impact on overall satisfaction.
The KPI performance of each individual card issuer varies widely, and each has a unique set of strengths and opportunities. In order to successfully prioritize any investments towards improving customer satisfaction, it is important for each issuer to fully understand which of their metrics have the greatest room for improvement while also understanding the potential ‘impact’ of each metric.
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.
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 2013 Primary Mortgage Origination (PMO) Study identifies growing consumer demand for a more digital origination experience. Providing customers with an online option to submit supporting documents, verify receipt of their application, check status of their application and electronically sign documents can have a significant impact on satisfaction.
Quicken Loans, the top performer in the 2013 PMO study, has been among the quickest to provide a digital experience for their customers, which has helped drive their industry-best satisfaction score.
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.