Editor's note: Sheri Petras is CEO of CFI Group, an Ann Arbor, Mich., research firm.
The banking landscape is fundamentally changing. Fewer customers are entering branches and the numbers will continue to shrink. In addition, tighter federal regulations make it more difficult to offer new products. In this new environment it has become a major challenge for banks to build trusting relationships with customers.
The good news is that bank managers committed to securing, maintaining and improving customer satisfaction have new data-driven insights to inform effective customer engagement strategies. An analysis of data from CFI Group’s 2014 Bank Satisfaction Barometer (BSB) reveals three critical drivers of bank customer satisfaction: the emphasis customers place on the role of the bank branch has changed, indicating branch locations have less impact than in the past on overall satisfaction, yet still influence customer acquisition; strong communication and information exchange by banks to customers is a distinct competitive differentiator; and customer adoption of online and mobile technologies is driving banks to innovate.
CFI Group launched its first BSB in Q3 of 2013. The BSB model looks at seven key drivers of customer satisfaction: products and services; information and communications; branch staff; branch convenience; ATMs; rates and fees; and online and mobile banking. Conducted using the patented methodology of the American Customer Satisfaction Index (ACSI), the BSB calculates an “impact” for each satisfaction driver as an indication of what relative return on investment banks can expect in terms of increased customer satisfaction (BSB score) when investing in a particular area.
(The initial BSB study in Q3 2013 leveraged the ACSI methodology to secure detailed information from 500 customers of banking institutions of all sizes, across the country. At the end of Q2 2014, CFI Group again studied a similarly-sized group of bank customers to secure additional – the most recent – benchmark data that can be used by the banking industry at large.)
The 2014 BSB’s analysis of these key drivers suggests necessary changes in the strategies banks use to interact with their customers. Having a strong understanding of how these changes impact satisfaction will position banks to stand out from the competition.
These three findings necessitate that the banking industry take notice and take action:
The relationship between customers and bank branches is changing. The introduction of U.S. branch banking in the early 20th century made it possible for smaller banks to expand; at the same time, it enabled national brands to establish a brick-and-mortar presence in local markets. While the location of the branch and the quality of the service customers receive is important today, according to BSB findings, it is less central to the customer experience.
More than a quarter of bank customers surveyed said they were already using their bank branches either somewhat less often or significantly less often than they had in the past. Only 17 percent admitted to using the branches more often and 52 percent said their usage was about the same. When asked about the future, most customers (60 percent) did not expect their branch usage to increase, while 25 percent expected it to decrease. Only 15 percent of respondents reported that they expect to visit their bank branches more often in the future.
How much are bank customers using these branches today? The survey revealed that the days of the weekly branch visit are long gone. Thirty-six percent of customers rarely, if ever, visit a branch and are at risk of being lost to online-only banks. Only 37 percent of customers are visiting a branch more than once a month. As com-pared with historical data, 31 percent are using the branch less often than three years ago.
Despite the decline in usage, customers value the fact the branch is there for them to handle business they can’t (or prefer not to) handle online or via ATM. When asked how important the branch location was to the bank customer, 64 percent said it was either important or very important. Another 26 percent said it was moderately important. Only 10 percent of bank customers reported the branch location was of little or no importance. Further, 68 percent of respondents stated their closest bank branch was no further than three miles from their home.
The local branch still plays a key role in attracting new customers, even as it plays a shrinking role in retaining existing ones. Of the reasons customers gave for choosing to do business with a particular bank, the greatest factor was convenience of the location. According to the BSB data, nearly 40 percent of new customers in 2013 came to the bank for this reason. While that number fell to 35 percent by 2014, satisfaction with branch convenience still rose a point on the index from last year, rising from 84 to 85. Last year’s BSB revealed that the branch personnel accounted for 28 percent of the variation in customer satisfaction. This year, that number had fallen to just 16 percent.
Information and communications from banks provide major opportunities for banks to differentiate themselves. Just a few years ago, high interest rates for banks’ deposit accounts and low interest rates for their mortgage loans were key drivers of customer satisfaction. That has shifted. In response to uncertainty regarding new rules for many bank products, the erosion of customer trust in financial services companies in the wake of the financial crash and concerns about privacy and security in general, customers are more sensitive to information and communications from their banks. All other factors being equal, a financial institution that does not seriously meet customers’ needs for information and communication will perform at a lower level than competitors.
In fact, according to the most recent data, this driver of satisfaction has three times more leverage on customer satisfaction than it did just one year ago. No other BSB variable changed as much during this period. It’s also important to note that younger customers, who are more likely to rely on mobile and online tools, are less satisfied with the quality of information and communications provided by their banks.
Customers under age 35 score performance in this area at 81 (out of 100) versus a score of 88 from customers 50 and over. Meeting the needs of younger customers in this area is important for attracting loan business (e.g., automotive loans or first-time home buyers).
While a more complicated banking environment and concerns about security are key reasons for this change, an improving economy is having an effect as well. This variable is sending customers back to the market and in search of additional credit. Understanding that there is a need for clear communication and more information to ease tension in an increasingly complex environment, it was no surprise that the 2014 BSB study found that this was the most significant driver of overall customer satisfaction.
The importance of online and mobile banking continues to rise. As reliance on the branch declines, online and mobile banking offerings are now among the most significant drivers of overall bank customer satisfaction. Customers expect the bank to offer them online methods of transacting business and they expect those methods to be convenient, reliable and easy to use.
The influence of online and mobile on satisfaction has increased 27 percent since 2013 and has eclipsed branch staff in its relative leverage on satisfaction. Customers of all ages have made Web-based banking a way of life, with 86 percent of those between ages 18-49 doing at least half of their banking remotely and 76 percent of those ages 50 and over doing so. For an increasing number of respondents, that means using the bank’s mobile app. Usage reached 36 percent this year, up a point from 2013. The most often used remote banking service in 2014 was to check account balances. More than half of all respondents (52 percent) say they check account balances remotely. Thirty percent said they checked their balances at least once each week using this method.
While the satisfaction score for online banking and mobile apps only rose one point between October 2013 and June 2014 (increasing from 86 to 87), the impact of this driver jumped from 19 percent to 25 percent. This makes online offerings an imperative for banks going forward.
However, even though bank customers are increasingly embracing online offerings, the fact that the bank offers these products and services does not yet appear to be a reason for a bank customer to begin doing business with an institution. It does not seem likely that banks will win more clients just by building online offerings as only 3 percent of respondents said they chose their bank based on its Web site or mobile app.
Still, this trend should not be overlooked. The importance of online and mobile banking as a driver of customer satisfaction has risen by six percentage points since last year. Taken together with the increase in the customer’s desire for information and communications, these two drivers now account for more than half the variation in customers’ satisfaction. Last year, they accounted for less than 40 percent.
Remains a key driver
The bank branch remains a key driver of new business for the bank but once these customers arrive, the branch has little impact on their satisfaction going forward. Even the branch personnel, who have historically been a major driver of satisfaction, are now less salient to the customer. While physical branches still play a significant role in customer acquisition, an investment in them with the expectation of driving increased customer satisfaction would deliver low returns. In general terms, the BSB model tells us that the physical branch is generally meeting customers’ expectations today.
As online and mobile banking become more widely accepted and are able to facilitate a broader variety of transactions, customers’ need for bank branches declines. But with customers visiting branches less frequently – and face-to-face contact reduced – the need for effective information and communication becomes more critical.
Of the seven drivers of customer satisfaction CFI Group tracks in the banking industry, none changed as much, year-over-year, as the customer’s desire for information and communications. Banks that do a good job of providing the information their customers require will see higher levels of customer satisfaction in the year ahead and reap the benefits this brings their institutions.
Banks are therefore urged to provide clear, relevant and timely communications to their customers, not just regarding bank products and services but about all aspects of their customers’ financial lives. This may be banks’ best opportunity to differentiate themselves from their peers. Understanding the needs of different customer segments is important with younger customers more focused on digital technology and communications.
Finally, banks must invest in the future with online and mobile tools that will empower their customers. Customer adoption is widespread and survey respondents were very clear in the significant impact these services have on overall satisfaction with their bank. Based on the research findings, it is clear that bank management cannot ignore the importance of these offerings to their customers.