Banks have upper hand in tech but no room to be complacent

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Big banks are gaining on smaller competitors when it comes to customer satisfaction, particularly among millennials, but shifting preferences for faster, digital experiences are also creating opportunities for nonbank competitors, J.D. Power said in a new paper.

Midsize banks fared the best when it came to reputation and perception as being customer-driven, followed by regional banks and finally the six biggest banks in the U.S., J.D. Power said. But customers of the very biggest banks had on average more products and higher deposits with their bank of choice.

The paper also revealed a clear generational divide: Consumers over 40 favored regional and midsize banks and gave them especially high marks for personal service, while consumers under 40 preferred big banks and ranked them highly on convenience. The findings suggest the six biggest banks in the U.S. could be poised to capture ever greater market share as consumer preferences shift toward digital channels.

“There’s a clear warning when you look at the difference in satisfaction for customers under 40 versus over 40,” said Bob Neuhaus, vice president of global financial services at J.D. Power. “If I was a midsize bank, I would be very concerned about my ability to catch up and compete on that level. It’s going to have an impact on revenue and cost structure and the fundamental existence of the bank.”

The appeal of the speed and convenience of digital-only banking was apparent, too, confirming the inroads made by the likes of online lenders such as SoFi and LendingClub. In one study of customer satisfaction with personal loans, a digital-only application process ranked the highest, earning 886 out of a possible 1,000 points.

Big and regional banks have responded to the challenge presented by nonbanks, of course. Some, like Citizens Financial Group and MUFG Union Bank, have launched digital products to gather more deposits, while others, including PNC Financial Services Group, have digitized their consumer lending processes.

The Retail Bank Industry Insight paper released by J.D. Power this week is not a single survey, but a cross section of findings from several other studies it has conducted on customer satisfaction and retail banking.

For the purposes of this analysis, J.D. Power defines midsize banks as those with $2 billion to $55 billion in deposits and at least 30 branches. Regional banks included Bank of the West, BB&T, BBVA, BMO Harris, Capital One, Citizens, Comerica, Fifth Third, HSBC, Huntington, KeyBank, M&T, Regions, Santander, SunTrust, TD Bank and MUFG Union Bank. The big banks were Bank of America, JPMorgan Chase, Citi, PNC, U.S. Bank and Wells Fargo.

Among its other findings, customers of traditional banks were the most satisfied when they used a combination of branch and digital channels (a score of 821 out of 1,000) and the least satisfied when they totally disengaged with the branch (793). But customers of digital-only banks were more satisfied than any type of traditional bank customer (860).

Neuhaus said that disparity could be explained by a sort of self-selecting mechanism. Direct bank customers are comfortable banking entirely online and willing to trade the availability of a branch network for something else, like higher deposit rates.

“When you choose a direct bank, it’s a very deliberate choice to engage that way,” Neuhaus said. “What the direct banks have offered in terms of convenience, and pricing and higher rates on deposits, has resonated very strongly with consumers.”

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