Investing in the Correct Channels

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.

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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.

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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.

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Opportunity for Financial Institutions to Improve Social Media ‘Shopping Experience’

Data from the J.D. Power 2014 Social Media Benchmarking Study (released in April 2014) finds that banks and credit card issuers can improve their social media presence as a potential method of driving new business. When compared to other industries measured in the study, banks and card issuers receive lower satisfaction scores related to the social media shopping experience. Currently, 36% of retail banking customers use social media as a method of gathering information (products, promotions, etc.), compared to 21% of credit card customers.

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It is also important to note, however, that banks and card issuers actually receive high satisfaction scores related to the servicing experience on social media. In fact, customer satisfaction with social media as a servicing channel is higher than all other channels commonly measured by J.D. Power (branch, website, mobile, ATM, call center).

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Retail Banking Customers Less ‘Price Sensitive’

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.

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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.

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Minimizing Investor Dissatisfaction with ‘Poor’ Investment Performance

Data from the 2014 JD Power Full-Service Investor Satisfaction Study finds a significant increase in the number of investors reporting that their portfolio performance was ‘better-than-expected’ (driven by healthy market performance throughout 2013). Accordingly, overall investor satisfaction also improved significantly, as good financial performance tends to drive investor satisfaction.

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However, history tells us that market performance fluctuates and that a ‘downturn’ is likely at some point in the future. In preparation for this, financial institutions and advisors should identify behaviors that can help mitigate dissatisfaction with ‘poor’ portfolio performance. In turn, minimizing dissatisfaction may help prevent investor attrition and/or the transfer of assets to competitors.

Once the behaviors are identified, focus should be placed on implementing new processes and/or training programs to ensure that the institution and its advisors are capable of providing the optimal level of service to their clients.

Key methods of minimizing investor dissatisfaction with ‘poor’ portfolio performance include:

Building a strong ‘advisor-investor’ relationship

Developing a clear financial plan

Discussing and incorporating risk tolerance

Clearly communicating reasons for investment performance

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The Negative Impact of Mergers and Acquisitions

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.

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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).

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Building Investor-Focused Relationships

Data from the J.D. Power U.S. Full Service Investor Satisfaction Study clearly shows that good market performance influences satisfaction.  However, it’s the development of strong relationships with investors that determines which firms thrive. Firms must ensure that advisor actions align with investor expectations and, thus, strengthen both loyalty and advocacy.

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Keys to building strong relationships include:

Ensure financial planning activities clearly define a strategy based on key needs and goals. As the relationship progresses, plans must adapt to changes in both the investor’s life circumstances and the broader financial environment.

Tailor the communications approach to the unique needs of the investor instead of using a “one-size-fits-all” approach. Investors want to believe their advisors understand them and their needs, which begins with interacting via their preferred method.

Build transparency into all interactions. Two key issues for all investors are whether they are making as much as they can and whether they are paying too much. Ensuring there is clarity in both areas will help to build trust.

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Does Customer Satisfaction Really Matter?

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.

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Using Rewards to Drive Increased Credit Card Spend

Early 2014 performance indicators are encouraging for credit card issuers, as customer satisfaction is on track to reach its highest level since the inception of the J.D. Power Credit Card Satisfaction StudySM in 2007. And while the Target data breach may have impacted consumer willingness to make electronic purchases, data finds that issuers can use ‘attractive’ rewards offerings to drive higher levels of personal credit card spend.

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As expected, customer perceptions of reward attractiveness vary based on their preferences, which are driven by customer demographics and psychographics. For example, comparing two airline co-branded credit cards may show significantly different demographic profiles. One of the cards may frequently attract customers that are younger, less affluent, and less educated, while the other tends to attract older customers that have multiple children living in their household.

Understanding these segmentation differences (i.e., life style, life stage, hobbies/interests, spending habits, etc.) can help issuers design more appealing reward programs. If an issuer determines that a specific airline credit card attracts customers who frequently travel internationally, the issuer could add rewards associated with foreign travel or potentially partner with a hotel chain to allow additional earning opportunities. Another example is a bank-branded card that attracts sports enthusiasts, in which case a credit card issuer could add access to sporting events as a redemption option or partner with leading online ticket retailers to allow customers to pay for tickets using rewards.

Lastly, educating customers on the details of rewards programs is critical in order to maximize the impact on spend. And while it is important to inform customers about all program terms (as indicated in the chart below), lack of awareness regarding the types of rewards available has the greatest individual impact.

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Improving ‘Engagement’ with Tenured Business Banking Customers

Data from J.D. Power’s 2013 Small Business Banking Satisfaction Study finds that Product Offerings satisfaction declines significantly as a customer’s tenure with the bank increases. Customer perception of product-related communication (or lack thereof) is a key driver of the satisfaction differences noted across different customer segments.

Analysis of customer verbatim comments may indicate that banks are more focused on communicating with newer business customers, in an attempt to ensure satisfaction and ultimately increase loyalty and cross-sell potential. Conversely, longer-tenured customers may feel ‘forgotten’ as the level (or quality) of communication received from their bank decreases over time.

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It is important for financial institutions to stay in-touch with their business customers, particularly those with longer tenures, as those customers appear to be more critical of their bank’s attempts to communicate with them. And it is especially important to focus on engaging tenured business banking customers that DO NOT have an assigned account/relationship manager.

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Retail Banking Satisfaction at Record-High Level

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.

March 2014 Advisory Board Slidesv4

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