Online-Only Banks Best Branches in Satisfaction, but Gap Is Narrowing
The survey exposes a need to focus on cross-channel banking consistency.
The survey of 2,709 customers found that overall satisfaction score for direct banks, which operate solely online and don’t have branches, was 57 points higher on a 1,000-point scale than for traditional branch-based retail banks. But the survey also found that the gap in satisfaction with the mobile experience is narrowing between direct and traditional banks, and less than half (43%) of the people who use direct banks consider them their primary banks.
“Direct banks have traditionally occupied a niche of the retail banking marketplace where they serve mainly as secondary banks with competitive products and strong digital- and phone-based tools that drive high levels of customer satisfaction,” J.D. Power Financial Services Consultant Bob Neuhaus said. “However, these banks still represent less than 10% of industry deposit share and they are experiencing some deterioration in customer satisfaction with customer understanding and mobile offerings. If they want to evolve from a secondary to a primary bank relationship, they need to focus on cross-channel consistency and ramp up their digital capabilities.”
Although the survey didn’t involve credit unions, its insights may have some application in the industry. For instance, many more players are toying with the online-only model. Ironically, that could spark a branch renaissance, according to J.D. Power Senior Director of Banking Services Paul McAdam.
“This marketplace is going to get so crowded because these big banks are moving in [to online-only offerings]. I mean Chase, Wells Fargo, eventually Bank of America will probably do something. Then what/?” he said in an interview with CU Times.
“I mean, it’s going to be superconvenient for customers, but how would a smaller institution really differentiate?” he said. “It seems like it would have to be through the personal touch when customers need it. I think there’s a world out there for…call it a ‘thin branch network.’”
Almost a third of traditional retail banking customers are already digital-only, according to data from J.D. Power, making them ideal targets for direct banks. To thwart that new competition, traditional financial institutions have to focus more on personalizing their communications, it noted.
“A key challenge for traditional retail banks is the lower levels of customer engagement among their digital customers. Traditional retail banks struggle to interact consistently, provide advice and deepen product penetration among these customers,” the company noted in data provided to CU Times. “Understanding of fees and features, as well as receiving tailored information are notably lagging for digital-only traditional bank customers, compared to direct bank customers.”
Social media prowess is also a must-have. According to J.D. Power, 38% of direct bank customers who opened a new product in the past 12 months said they were influenced by social media to open the new product. About half of Gen Y, Gen Z and mass affluent customers in the survey said social media was influential.
But according to the survey, the absence of branches keeps 36% of direct banking customers from making direct banks their primary banks. Be ready for more marketing from direct banks about the benefits of self-service and phone-based features, the survey suggested.
Branches or no branches, financial institutions will have to step up their online game, especially for Gen Y customers, who were born between 1977 and 1994 and who tend to use more complex online features such as expense tracking and financial-management tools, the study noted.
Being able to customize website organization and navigation settings is important to Gen Y, as is avoiding site clutter, the study found.
But branches can be differentiators, too, McAdam noted.
“Younger customers, millennials, Gen-Y — and in particular, the ones who are emerging affluent or on an emerging affluent path…they use the branches more than their lower income, less educated counterparts,” he said. “So it just shows you that these younger customers who are on a nice trajectory — yeah, okay, they’re not using them as much as they would have 10 years ago, but they still view banks as a credible provider of advice.”
The key is to strike while the iron is hot.
“When customers get in their 40s and 50s, if the bank doesn’t have an advisory relationship by that point, it’s just not going to happen. They’ve moved on. They have somebody else,” he said. “So it really, that’s what we advise banks: be careful with this and don’t just assume that young people never want to talk to you.”