More on the JD Power survey on banking customer loyalty.

Banking Strategies Blog : Why Can’t Some People Commit?

BY JEFF TAYLOR AND GINA PINGITORE, PH.D. J.D. POWER AND ASSOCIATESFace it. Runaway customers are just not that into your bank. What more can be done to nurture customers who will stay in good times and in bad? This exclusive report on the just-released J.D. Power and Associates Retail Banking Satisfaction StudySM ranks 33 of the largest banks’ success in maximizing customer commitment.

| SYNOPSIS | The inaugural J.D. Power and Associates Retail Banking Satisfaction StudySM ranks 33 of the country’s largest banks on the basis of customer satisfaction and customer commitment. Banks vary within a narrow band on customer satisfaction; the survey found more bank-to-bank variance in customer commitment although banking enjoys a much higher level of committed customers than JDPA finds in other industries. Satisfaction and commitment insights are offered as a means of driving bottom-line results, by employing customer service, product development and operations strategies aimed at retaining and attracting highly committed customers.

It appears we are in the company of rental cars and hotels.

When compared to our findings in other service-related industries, retail banking ranks in the middle of the pack in terms of customer satisfaction, similar to hotels and rental cars. This suggests the industry has some room for improvement overall. However, the differences between individual banks are fairly slight. Although each industry offers a unique set of experiences, our research has revealed that in industries or services where products are viewed as commodities (as in banking), there tends to be less differentiation in satisfaction ratings. Believing that most banks provide similar products and services, consumers tend to rate banks as basically the same.

Then some clues come in to play:

1. But there are differences. JDPA’s study finds that customers of smaller institutions, such as credit unions and community banks, tend to be more satisfied with their bank than are customers of the largest banks.
2. Branch convenience is just a piece of the story.
3. For the banking industry, “transactional” satisfaction dominates the performance ratings because banking is a business built on transactions, such as deposits, withdrawals, lending, etc. The transaction factor is further subdivided into measures that gauge satisfaction where the transaction is conducted – whether in-person at the branch or via remote channels such as the call center, ATM or online. Interactions at the branch, ATM and online tend to have the greatest impact on customer satisfaction.
4. Along with transactions conducted via a customer service representative, online banking is the transaction channel with the highest average satisfaction level. With a higher percentage of customers who use the online channel, Commerce Bancorp and Wachovia Corp., Charlotte, N.C., both earn above-average ratings. This contributes to their customers’ higher overall satisfaction.
5. Customers who visit the branch less often have a slight propensity to be less satisfied and less committed. Banks with the lowest in-person transaction usage include Citicorp Inc., New York; Wells Fargo & Co., San Francisco; Bank of America Corp., Charlotte, N.C.; JPMorgan Chase & Co., New York; and the former Bank One Corp., now owned by Morgan Chase. All five have in-person transaction rates below 77%, as compared to the industry average of 83%. Each bank also has low overall customer satisfaction, at least 20 index points below the industry average.
6. The relationship between branch types and satisfaction is difficult to ascertain. Downey Savings, with more than half of its branches located in supermarkets, earns well above average overall satisfaction. Yet Wayzata, Minn.-based TCF Financial Corp., another firm that relies on supermarket branches, ranks far below-average in overall satisfaction. TCF has much higher than normal wait times for all transaction channels: branch, online or call center.
7. The ATM channel can help boost satisfaction and commitment scores in some cases. Wells Fargo customers use ATMs more frequently for transactions (80% versus an industry average of 65%), and view this transaction method more positively than the industry average. In fact, ATM activity represents the only transaction method that Wells Fargo customers rate higher than the industry average.
1. By contrast, more than eight out of 10 customers of Union Bank of California (owned by San Francisco-based UnionBanCal Corp.) and Columbus, Ohio-based Huntington Bancshares Inc. use ATMs but don’t rate the experience as positively.
2. These lower ratings occur despite the fact that fewer Union Bank and Huntington Bank customers report an out-of-service ATM or one that’s missing supplies; that’s nearly one-and-a-half times better than the industry average.
8. perceptions of convenience, competitive product offerings and fees, financial statements and problem resolution are also important.
9. problem resolution accounts for a small percentage of the customer’s experience. But for those customers who actually experience a problem (one-fourth of those surveyed did), problem resolution becomes the most important element influencing their banking satisfaction

And the best practise banks’

1. The survey identified Seattle-based Washington Mutual Inc. as one bank doing a good job of addressing service problems. Wamu’s customers are more satisfied with problem resolution, despite the fact that more of them experience problems. This is an exception. Most of the high-satisfaction banks minimize problems that customers experience, and nearly all of the survey leaders garner fewer than the average number of problems.

2. Convenience accounts for much of the high satisfaction rankings earned by Commerce Bancorp and Downey Savings. Commerce branches are open seven days a week and over half of Downey branches are located in supermarkets, which also have convenient hours and locations.

3. Satisfaction with product offerings doesn’t vary much between banks, but Commerce and a few others earn high ratings. Institutions such as ING U.S. Financial Services, Atlanta, and World Savings Bank (subsidiary of Oakland, Calif.-based Golden West Financial Corp.) earn above-average satisfaction ratings on their fees.

These factors describe the “emotional” factors that affect the way a customer feels about a provider.

Customer Experience The customer experience in retail banking is defined by the convenience of branch locations, product offerings, transaction channels, accuracy, fees and problem resolution.

Across all of the industries where we have measured Customer Commitment, we consistently find that the customers’ experience is the best determinant of commitment.

Bottom Line impact:

A strong positive relationship exists between the level of customer commitment and a number of revenue-generating and cost-saving behaviors. JDPA has found this relationship not only in banking and other financial services but also in hospitality, airlines and telecommunications.

Final thought:

For most banks, however, improving the customer experience (ease of transaction and offering better products, etc.) will produce a more immediate impact on satisfaction and further drive customer commitment.