High rates alone won't make direct banks' customers happy, study says

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Online-only banks are still outperforming branch-based retail banks in customer satisfaction, but to maintain that momentum, they will need to win more than just consumers’ deposit business.

Customers of direct banks who had an account for a year or longer were significantly less satisfied than new customers, according to a recent analysis by J.D. Power. Existing customers were also less likely to use another of the bank’s products or services, J.D. Power said.

But J.D. Power also found that the more types of accounts a customer has with an online-only bank, the more satisfied they are over the long term. Customers with credit cards, loans or investment accounts were much more satisfied than those who only had deposit accounts.

“When it’s just a checking or savings account, it’s kind of like a sugar high,” said Bob Neuhaus, vice president of global financial services at J.D. Power. “It’s great upfront, but then it’s going to fade as the memory of that fades.”

Many customers of direct banks only have savings accounts, which are typically secondary to a customer’s primary banking relationship, he added. Those customers are therefore less likely to stay up to date on the bank’s mobile app and online banking features, and they’re less likely to use it as frequently as customers who have different types of accounts.

Online-only banks, such as Discover Bank and Ally Bank, attract customers in large part by offering higher interest rates on deposits than their brick-and-mortar counterparts.

A growing number of branch-based retail banks have launched their own online brands to keep up with direct banks. For example, JPMorgan Chase established its online bank, called Finn, in 2017, and Citizens Financial in Providence, R.I., launched its online brand Citizens Access in mid-2018.

Among new customers, direct banks earned a score of 882 out of 1,000 in J.D. Power's direct banking satisfaction study, compared with 862 among customers who had had an account for a year or longer. Direct banks earned a score of 883 among customers who held a variety of accounts, regardless of how long they had been customers.

As a whole, direct banks earned an overall satisfaction score of 860 out of 1,000, versus the 807 that traditional, branch-based retail banks scored in a comparable study.

Customers of direct banks skew younger than customers of traditional retail banks. They cited competitive interest rates as their main reason for choosing those banks, while traditional retail bank customers made their decisions based on convenient branch locations, J.D. Power said.

Charles Schwab Bank, Ally Bank and Discover Bank ranked the highest among all the direct banks the firm studied.

Neuhaus noted that Discover’s online bank dovetails with its credit card business, while Schwab’s online bank is a nice counterpart to its wealth management business.

Schwab is “sort of unusual here because they have the investing side of their business model and the direct bank is a complement to that model,” he said. “They’re doing a couple things that come together to create a stronger relationship.”

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Online banking Consumer banking Mobile banking Ally Bank Charles Schwab Discover JPMorgan Chase Citizens Financial