Despite continuing complaints about fees and other aspects of their financial relationships, consumers find that banks are doing more right when it comes to customer service.

Commercial banks, in fact, have scored a sizable gain in customer satisfaction after two years of backsliding, as measured in the American Banker/Gallup consumer survey.

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Thrifts and credit unions, by contrast, saw declines this year in overall satisfaction.

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The commercial banks also enjoyed a "statistically significant" rebound in their collective market share to the 1992 level, when 59% of the public designated banks as their principal financial institutions. This may result from service improvement efforts, the "halo effect" of banking's robust profitability, or a less obvious marketing factor. (See related article on page 20.)

But there are also signs that banks are benefiting only in the relative terms of diminished expectations. With 61% of their customers describing themselves as "very satisfied," commercial banks still have not matched their 65% figure of 1991, and they are only "average" in the current competition with thrifts and credit unions.

That same 61% is the benchmark for all of the more than 1,000 people in the survey who rated the overall service quality of the institutions they identified as their primary ones. Credit unions came in 11 points better than that norm, savings institutions seven points worse.

Depository institutions as a group do not rate well in such areas as fees, competitive interest rates, and speed of loan decisions. In these service components -- and even in qualitative areas where customers are more satisfied, like staff courtesy and problem-solving -- credit unions, with their tradition of personalized service, tend to do better than banks or thrifts.

Credit unions thus maintained their perennial position atop the chart for overall customer satisfaction, but the number "very satisfied," at 72%, is down for the third year running. By comparison, among people who called credit unions their primary institution, 74% were very satisfied in 1993, 77% in 1992, and 78% in 1991.

Credit unions still excel in year-to-year improvement: 38% said service got better, compared to 7% saying it got worse. The spread was comparable to the 32%-3% of 1993 and 36%-4% of 1992.

The 1994 split among bank customers was 24%-9%, while thrifts were at 14%-8% -- both within a few percentage points of the previous year.

But credit unions saw slight declines in their number of total users, to 43% from 44% in 1993, and in the number of principal customers, to 16% from 18%. Both moves were within the statistical margin of error of 3%.

Thrifts, while holding their key market-share measure at 18%, took a precipitous tumble in quality ratings. After increasing a healthy seven points in 1993, to 64% "very satisfied," savings institutions dropped a full 10 points in 1994, to 54%.

Thrift customers' satisfaction is at its lowest level in the 11 years of American Banker surveys -- even below where it was during the depths of the bailout crisis in the late 1980s.

Industry observers said the survey results reflect less on high-profile, thriving thrift survivors like Washington Mutual, TCF Financial, and People's Bancorp, than on a change in the public's mood and associated preferences.

"Thrift customers are self-selecting; they tend to seek out a more personalized, less intense environment," said Les Dinkin, managing principal of NBW Consulting, Westport, Conn.

Thrifts historically met those needs because they did not have stockholder pressures like those of commercial banks. Depositorowned thrifts are becoming a rarity, Mr. Dinkin pointed out, forcing the institutions into more of a "bottom-line orientation," competitive with strong retail banks.

There also may be a decline in that "self-selecting" population or in demand for the more relaxed, high-touch banking approach.

Indeed, there is a growing body of evidence that the brick-and-mortar bank branch has lost its historical appeal for customer convenience and security.

A 1993 First Manhattan Consulting Group study, commissioned by the Bank Administration Institute, found a majority of the largest banks' transactions were already being conducted through newer delivery channels like automated teller machines and telephone service centers. The study predicted an even more pronounced shift away from branches by the year 2000.

Huntington Bancshares Inc. of Ohio, PNC Bank Corp. of Pennsylvania, and others are building entire strategies around the premise that consumers simply don't want to visit manned banking facilities.

"Think about how many people get by for months or even years at a time without visiting a bank branch," said David Cooperberg, managing director of consulting at Wilcox & Associates, New York. He said the growing regard for convenience independent of physical facilities is influencing the service-delivery strategies of many of the banks he works with.

It could well be that self-service and other means of convenient access are a major influence, if not yet the overriding factor, in general assessments of financial institution service levels.

This attitudinal shift would play into the hands of commercial banks, which are the most invested, albeit haphazardly to date, in alternative delivery systems. How else to explain banks' rise in the overall satisfaction measure to 61%, even though they fall well below that figure in ratings of service components like speed, efficiency, staff knowledge, and pricing?

According to this "delivery system hypothesis," thrifts and credit unions are generally less up to speed.

"Sometimes we forget how far the ATM has come over the last 15 years," Mr. Dinkin said. "Machines are everywhere, have greater functionality, and have improved customer interfaces that make them easier to use.

"Over the years of experience, customers have gotten comfortable with ATMs, phones, and the whole notion of remote services, to the point where this may be having an effect on total satisfaction."

"Self-service is definitely a plus in the big cities, where anonymity is pervasive and the convenience factor is very strong," said Justin Moran, a management consultant based in Ann Arbor, Mich.

Given that the ATM provides a basic, straightforward service on which a significant portion of the banking population in urban areas has become highly dependent, the machines' accessibility and reliability may have become important contributors to bank quality ratings.

But Mr. Moran does not downplay service quality and customer retention -- ideals that still have to be pursued by headoffice and branch personnel.

"Like the whole notion of sales culture, these are major issues and the subject of a lot of talk, but I'm not sure how much action," Mr. Moran said. "All bankers know they have to do a better job, but they are struggling with how to measure it. There is a lot more to it than addressing customers by name, and saying please and thank-you."

Perhaps the most positive news for banks -- and thrifts and credit unions, for that matter -- is that their business is still "a matter of relationships," Mr. Moran said. "This should be a big plus -- if they exploit it."

In the American Banker/Gallup survey, 33% of financial consumers named a thrift, or credit union as holding their primary relationships, on top of the commercial banks' 59%. Only 6% named a mutual fund, stockbroker, or other nonbank as their principal institution, though many more use them for one or more services.

The market share and service quality at banks, thrifts, and credit unions do not seem to have suffered from mergers. Of the approximately one-fourth of consumers who said their institutions merged in the most recent year, 76% said quality stayed the same or improved in 1994, up from 72% in 1993.

Neither has banks' move into riskier investment products caused a backlash. Customer satisfaction with those products declined last year (see page 14), but that didn't prevent the overall quality rating from rising.

If there is a pitfall, it is in pricing, Mr. Moran said.

On three customers in 10 rated their principal institutions excellent in service charges and fees, and only one in five deemed their institutions excellent in loan and deposit rates. Commercial banks dragged these numbers down; 45% rated credit unions excellent on fees and loan rates, 29% on deposits.

Mr. Moran contends that credit unions' growth, "becoming more like banks" with more aggressive pricing, explains their recent declines in customer satisfaction.

As for banks, "It's not just nickel-and-diming any more. It's tenning-and-twentying," Mr. Moran said, citing the increasingly common $20 fee for bounced checks as being "out of hand."

"Banks benefit from having customers who know, trust, and like them, and they are losing the 'like'," Mr. Moran said. "Savings and loans and credit unions give better value. Bankers have to remember they are in a service business, people helping people. They can end up hurting themselves with this heavy emphasis on fee income.

"The human equation is what made the difference historically, and the thrifts and credit unions are not as likely to lose sight of that."

Are Banks Banking the 'Unbanked'?

The Gallup Organization's most recent survey for American Banker shows conclusively that commercial banks gained market share in 1994.

Commercial Banks Rebound in Market SharePercentage of households with at leastone service Designated as principal institution '90 '91 '92 '93 '94 '90 '91 '92 '93 '94Comercial 88 76 78 75 80 56 76 78 75 80banksThrifts 49 52 47 49 57 21 52 47 49 57Credit unions 40 43 40 44 43 15 43 40 44 43Insurancecompany NA 43 43 40 41 <1 1 1 1 1Mortagagecompany 27 32 31 32 36 1 1 1 1 1Mutual fundcompany 31 21 23 23 29 1 1 1 1 1Securitiesbrokerage 17 20 22 20 26 1 1 1 1 1FinanceCompany 21 17 17 19 18 <1 <1 <1 <1 <1

Eighty percent of survey respondents said they did at least some business with a bank, up from 75% in 1993. And 59% said a bank is their primary institution, up from 54%, Both increases were sufficient to discount any statistical error.

Not so clear in the market-share tables is where the banks' gains came from.

In the more critical market-share measure -- based on choice of principal financial institution -- only the credit union category declined in 1994. That was by two percentage points, to 16% -- less than the threepoint margin of error, and not enough to account for the banks' increase.

The answer may lie in the small group of consumers who in past years did not designate a principal institution, but appear to be moving toward commercial banks.

While the Gallup survey is designed to exclude people who don't have financial institution accounts -- they are screened out before the questionnaire is administered -- there were still 23 people in this year's sample that didn't name a principal institution or didn't give a good response.

This is an insignificant 2.2% of the survey base of 1,024 households. But it is down by almost half, from 4.2% (42 out of 1,009), in 1993, and by about a third, from 3.2% (32 out of 1,002), in 1992.

These numbers are too small for drawing broad conclusions, but in the context of commercial banks' overall gains, they may underline the trend: Banks are attracting new business to their full-service charters.

Some of it may be from the former "unbanked." The Federal Reserve Board's most recent Survey of Consumer Finances, based on more than 3,000 interviews with people at all income levels, found that the proportion of households without at least one transaction account fell to 12.5% in 1992 from 14.9% in 1989.

The American Banker survey for 1989, conducted by Trans Data Corp. and possibly not directly comparable to more recent Gallup results, included 53 out of 1,009 households -- 5.2% -- without a principal financial relationship.

The Fed said bankers' efforts to improve access to low-cost "basic banking" services may have been a factor in the improvement it measured, most of which occurred at the under-$10,000 income level.

The American Banker/Gallup surveys do not cover the low-income unbanked, but these were not the only prospective customers up for grabs.

In the last year, commercial banks increased their principal relationships in all but the over-$75,000 income segment -- where the only noticeable shift favored thrifts, to 16% from 13%. Among households under $20,000, banks jumped to 59% from 53%; they increased by one point, to 59%, in the $20,000-$40,000 group; and they rose to 56% from 47% where incomes were between $40,000 and $75,000.

About half of the people who did not give a principal financial institution for 1994 have incomes above $40,000.

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