If bankers want friends, they'd better all buy dogs. The accompanying remarks, taken from, participants in a national consumer survey commissioned by this magazine, provide a warning to anyone willing to listen: Banks are losing their grip on the retail consumer.

Customer loyalty has been one of the bedrock assumptions of banking in this country for as long as anyone can remember. Despite strong evidence to the contrary - like an enormous loss of market share as many of their biggest depositors have fled to the stock market in recent years - it seems that customer loyalty has largely been taken for granted. It shouldn't be.

This disturbing conclusion comes out of a survey conducted for U.S. Banker by America's Research Group, a Charleston, SC-based consumer behavior research firm. Its findings are based on extensive telephone interviews in August with 1,000 people in five U.S. cities: New York, Chicago, Seattle, Dallas and Miami. Each respondent qualified to participate by having a combined household annual income of $24,000 or greater. There were 572 women participants and 428 men; 67% of the participants were between the ages of 35 and 54; 51% described themselves as having a white-collar occupation; and 61% had either graduated from college or taken some college courses. ARG says the survey's margin of error is plus or minus 4.3%.

[Expanded Picture]The survey, which explores various aspects of how consumers interact with their banks and their opinions about banks generally, raises other red flags as well. Consolidation, while still a developing trend, threatens to strain consumer loyalty even further. And despite a recent explosion in marketing activity, it seems likely that home banking faces a tough uphill climb toward widespread consumer acceptance.

The survey's respondents deal mostly with banks, and on the surface, at least, their relationships tend to be enduring. Slightly over 83% said their primary financial institution was a bank, 9.6% said it was a credit union, 5.6% rely on a thrift, 1.3% on a brokerage firm and a scant 0.2% on a non-bank money market fund. For those who had an account with a second institution, 13.4% said it was with a money market fund, 11.5% with a credit union and 11.3% with a thrift. Nearly 61% said they had been a customer of their primary institution for at least six years, and another 20.5% had done business there for at least four years.

So, if most people bank only with banks and tend to stay put, what's the problem? When asked to measure their loyalty to their primary institution, only 29% described themselves as "very loyal," followed by 46% who said they were merely "loyal," 20% who were "somewhat loyal," 2.1% who had "little loyalty" and 1.7% who were "not loyal."

Looked at another way, nearly 25% of the respondents - most of whom call a bank their primary institution - expressed questionable loyalty. Give them reason enough and they'd probably go elsewhere, which in itself should keep bank marketing directors awake at night. But the problem doesn't end there. ARG chairman C. Britt Beemer says the larger concern lies in the "very loyal" category. In similar surveys that ARG conducted back in the 1980s, response rates to this same question were much higher - between 38% and 45% - while the "loyal" group was correspondingly smaller.

This signals to Beemer that bank customer loyalty has been eroding in recent years. And he argues that it pinpoints the industry's vulnerability to non-bank competitors since ARG's own research, as well as other studies, show that up to one-third of consumers in the less-committed "loyal" category can be stolen away by another institution through an aggressive marketing campaign. "The "loyal" group keeps getting bigger, (and) those customers can be moved," he explains.

Further underlining the industry's problem is the question of what the typical bank customer is actually loyal to. Is it the bank - or the branch? The single biggest reason for changing financial institutions - identified by 39% of the respondents who had done so within the last two to three years - was moving, followed by the offer of a better deal at another institution (33.6%) and anger over fee increases (18.5%).

When asked if they would consider moving their accounts if a new institution "opened locally with convenient locations," 25.4% said yes while 59.3% said they would not. Beemer has seen a marked change in the historical pattern of this attitude as well. Harris/Gallup surveys done in the 1970s had "no" scores of between 75% and 80%. The response rate slipped to between 66% and 75% in the 1980s on ARG's own research, and came in at 66% in a study it did in 1992.

[Expanded Picture]"I don't think there's any doubt that location is what's building loyalty," Beemer says. "A branch, even when you change a name, will keep 75% of its customers."

A Checking Relationship

As the industry has gradually lost market share to nonbank competitors in both credit and investment products - credit cards, home mortgages and mutual funds being primary example - the most common product relationship that a majority of people have with their bank is a checking account. But this is still largely a branch-based relationship for many people. Almost 72% of the respondents said they have automated teller machine cards, and 59% said they use them to make withdrawals from their checking accounts - but only 6.8% will use an ATM to make a deposit.

And it is here that the trend lines for location and loyalty come together for Beemer. "People, as they've changed their view of the banking relationship - and it's become a checking relationship - they're loyal based on whether the branch is convenient," he says. Beemer also believes that people have developed an exceedingly narrow view of their banking relationship, again because it tends to be built around a checking account. "I would say the number one thing I see in this research is how much less people expect from their banks than ever before," he adds.

The industry's loyalty problem is aggravated by another trend that, while still early, threatens to gather strength over time. The pace of bank mergers has accelerated in 1995, and most experts expect the rampant dealmaking to continue as long as bank stocks remain elevated. About 22% of the respondents - or about one of every five households-have already been customers of a bank that was later taken over by a competitor. Of those, nearly 25% made some change in their banking relationship - a defection rate that should have bankers concerned. "If you keep 90% of the people (after a merger), that's a successful deal," says Beemer. One industry veteran says that be starts getting nervous when post-merger attrition exceeds even 5%. (See "Will Bank Mergers Destroy Customer Loyalty?," page 30.)

If not handled smoothly, mergers always have the potential to disrupt customer relationships. Common factors cited by survey participants who had changed their banking relationship after a merger included the imposition of higher fees, impersonal attitudes and personnel changes.

The ARG survey also reveals that a significant number of bank customers - 41.8% - have been hit with fee increases in recent years. Of those, 61.7% have had their minimum balances raised, 65.7% have been required to pay higher ATM usage charges, 65% have seen their nonsufficient fund charges go up, 67.4% were paying more when ordering new checks and 61% were paying higher per check charges.

One of the more striking patterns to emerge from the survey is just how conventional average bank consumers are in some of their practices. In banking today, great emphasis is placed on rationalizing the branch system while at the same time expanding less-costly forms of non-branch distribution like home banking and ATMs. Unfortunately, it seems as though banks are well out in front - and perhaps too far in front - of many consumers. The losers won't necessarily be banks per se, but rather large banks who in their aggressive pursuit of these broad changes manage to chase many of their customers into the arms of smaller, more service-intensive and user-friendly institutions.

Over 35% of the respondents said they use a teller inside a bank branch at least once a week, and another 21.7% use a teller at least once every two weeks. More than 85% of the participants said they use a teller at least once a month.

And bankers beware: Nearly 54% of the participants said they would change banks if required to pay a $3 teller fee, while only 19.7% said they would go to the branch less often and 18.7% said they would use ATMs more. First Chicago Corp. created a great deal of controversy earlier this year when it imposed a $3 teller fee on certain customers in an effort to encourage greater use of non-teller access channels.

[Expanded Picture]It's also noteworthy that seven out of 10 respondents said they never do their banking by telephone - and nine out of 10 said they've never used a personal computer to access their accounts and conduct transactions. Of the latter, 50% said they were unlikely to consider home banking in the future. The reasons cited included the fact that they didn't have a home computer (36.8%), found the idea of home banking to be too complicated (19.6%), were afraid of mistakes (17.4%) or preferred personal visits to their branch (12.4%).

Do Consumers Want Home Banking?

More ominous yet, only 34.5% said they would consider home banking if the service was offered for free. "Home banking requires a computer," says Beemer. "What (bankers) don't understand is that all their friends may have computers, but the masses don't." Beemer also believes that a great many consumers are "extremely technology-averse," and that "it takes generations to change such attitudes." From his perspective, the problem is pretty simple: There is little demand for the product. "It's the banking industry that wants home banking," Beemer argues.

This suspicion is further evidenced by the attitudes that many of the participants have towards ATMs - a nearly-ubiquitous application of technology that has been around for years. Only 49.2% of the respondents said they really trust an ATM when making a deposit into it - and 80% said they still trust a human teller to get their transaction right more than an ATM.

There is one piece of good news. More than nine out of 10 people said they feel either "good" or "very good" about the financial stability of their financial institution, a clear sign for banks that their recovery from the dark days of the early 1990s is widely acknowledged.

Only problem is, it doesn't seem that the consumer actually relies on them as much anymore.

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