Big Banks Poised for Growth at Expense of Smaller Institutions: J.D. Power

There’s some bad news for credit unions and community banks. New J.D. Power industry insight suggests the nation’s Big Six banks are poised for growth at their competitor’s expense, particularly among younger customers.

But the same digital capabilities helping those big banks — Bank of America, Chase, Citi, PNC, U.S. Bank and Wells Fargo — succeed also give fintech startups from the banking, wealth, and lending sectors a chance to disrupt the status quo.

Costa Mesa, Calif.-based marketing information services company J.D. Power pulled together a cross-section of insights and data points from various studies in the retail banking, wealth management and lending space to offer some perspective on the industry’s future. The research found a combination of more robust digital offerings, better cross-sells across diverse financial products, economies of scale and improved user experience are helping big banks close the customer satisfaction gap with their regional and mid-size bank rivals.

“It’s been exactly seven years since droves of predominately young protesters descended on New York’s financial district to protest the behavior of big banks and large corporations in the wake of the financial crisis,” the J.D. Power report proclaimed. “At the time, the idea that millennials would now be spurring the growth engine that’s helping the six largest U.S. banks take market share from their smaller, regional rivals would have been hard to believe.”

Among the report’s highlights:

• Big banks are closing the satisfaction gap with smaller competitors, despite challenges in reputation and trust. Regardless of steady growth and improving customer satisfaction in the banking sector, customer perceptions of bank reputation have still not fully returned to pre-crisis levels. Big banks trail smaller competitors in this respect and are less customer-driven than mid-size and regional financial institutions.
• Big banks have an advantage in revenue over smaller competitors due to higher average deposits and more products per customer. Credit card, mortgage, savings and retirement accounts drive deeper product penetration. Fifty-nine percent of Big Six bank customers have three or more different products with their primary retail bank, a 16-percentage point advantage over regional banks and a 24-percentage point lead over mid-sized financial institutions. J.D. Power: “This revenue advantage is being helped by higher levels of digital engagement at big banks, which is driving lower branch usage and drives down costs to serve.”
• From a customer satisfaction perspective, J.D. Power sees a notable trend toward increased levels of customer satisfaction with Big 6 banks among the under 40 customer demographics. This group is giving the Big 6 banks the highest scores for convenience, ATMs, mobile and online banking, innovation, and financial advice. Midsize banks continue to satisfy older customers, especially with personal service.
• Customers continue to move towards digital channels, with digital-only customers significantly outnumbering branch-only customers. This shift to digital is giving an advantage to the big banks because higher adoption drives down the expensive branch transactions. “Big banks are well positioned against their smaller rivals, but as customers go digital only, we see that customers are less likely to reuse the bank and satisfaction drops.” J.D. Power notes this opens opportunities for fintech rivals, such as digital-only direct financial institutions, which have seen relatively low adoption thus far, but strong customer satisfaction scores.

The report added, “We see the clearest glimpse of the future of digital disruption taking shape right now in the personal loan market, where the most popular and satisfying method to engage is digital channels without the need to interact with a human.”