Stuck in the Middle: Creating a value proposition for
customers of regional and midsize banks
Customer satisfaction among retail banking
customers varies widely across the different
bank size segments that are measured in
the J.D. Power Retail Banking Satisfaction
StudySM (RBS). Historically, study data has
shown that overall satisfaction tends to be
higher among customers of midsize banks
and regional banks1 than among customers
of big banks. In the 2011 RBS, for example,
the overall satisfaction score for midsize and
regional banks was 777 (on a 1,000-point
scale) and 760, respectively, compared with
741 for big banks.
However, data from the first two fielding
waves of the 2014 Retail Banking Satisfaction
Study2 finds that big banks have made
significant progress in improving the overall
customer experience. Notably, satisfaction
scores for big banks are nearly equal to
scores for regional banks (778 vs. 782,
respectively). Further, the gap in satisfaction
scores between big banks and midsize banks
has narrowed considerably since 2011
(15 points vs. 36 points, respectively).
“Big banks have made
significant progress in
improving the overall
customer experience.”
OVERALL SATISFACTION
OVERALL
SATISFACTIONTREND
TREND
Big Banks
Regional Banks
Midsize Banks
793
771
753
737
2010
777
781
760
759
741
743
2011
2012
785
793
778
760
759
2013
2014
Year-to-Date
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Source: J.D. Power 2010-2014 Retail Banking Satisfaction StudySM
ig banks are defined as the six largest financial institutions based on total deposits ($180 billion or more) as
B
reported by the FDIC; regional banks are defined as those with $33 billion-$180 billion in deposits; midsize
banks are defined as those with $2 billion-$33 billion in deposits.
2
Wave 1 of the 2014 study was fielded in April 2013; Wave 2 of the 2014 study was fielded in July 2013; the 2013
study was fielded in January 2013 and published in April 2013.
1
A Global Marketing Information Company
jdpower.com
J.D. Power Insights
Stuck in the Middle
While increases in satisfaction among customers of big banks during the past few years are
evident across all factors measured in the Retail Banking Satisfaction Study, the improvements
center on three primary efforts:
■■ An increased focus on service basics, such as employee courtesy and knowledge, wait
times, and problem resolution
■■ Improved clarity and stability of pricing
■■ Continued advancement in technology, primarily related to such digital self-service
channels as ATMs, online banking, and mobile banking
In parallel with the increase in competition from big banks, regional and midsize banks
also face competition from credit unions and community banks,3 which have a reputation
for service excellence and high levels of customer satisfaction. As identified in the chart
below, analysis of data from the first two waves of the 2014 RBS finds that satisfaction
scores for credit unions and community banks are significantly higher than for banks in the
other segments.
2014 YEAR-TO-DATE OVERALL SATISFACTION
(AGGREGATE OF WAVE 1 AND WAVE 2 FIELDING PERIODS)
2014 YEAR-TO-DATE OVERALL SATISFACTION
(AGGREGATE OF WAVE 1 AND WAVE 2 FIELDING PERIODS)
849
839
793
Credit
Unions
Community
Banks
Midsize
Banks
782
778
Regional
Banks
Big
Banks
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
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3
Community banks are defined as those with less than $2 billion in deposits.
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2
J.D. Power Insights
Stuck in the Middle
The changing competitive landscape within the retail banking industry has created challenges
for regional and midsize banks. In terms of cross-selling, 41% of big bank customers have
opened a new product/service during the past 12 months—based on data from the first two
waves of fielding for the 2014 study—which is significantly higher than the 36% of customers
of regional banks and 37% of midsize bank customers. Perhaps more important, customer
attrition is highest at regional and midsize banks, as reflected in the figure below.
Big Banks
Regional Banks
Midsize Banks
CUs/Community Banks
Actual Attrition Rate
12%
10%
10.1%
9.2%
8%
7.9%
6%
4%
2%
3.7%
2009
2010
2011
2012
Source: J.D. Power 2010-2013 J.D. Power Financial Services
Source: 2010-2013 J.D. Power Financial Service Screener
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3
J.D. Power Insights
Stuck in the Middle
The identification and promotion of a clear value proposition is an additional challenge facing
regional and midsize banks, and is likely driving their cross-sell and attrition concerns. Regional
and midsize banks lack the resources needed to match the competitive advantages offered by
big banks. According to data from the first two waves of fielding for the 2014 RBS, satisfaction
with the branch and ATM network is significantly higher among customers of big banks, who
are also significantly more satisfied with their ATM, website, and mobile phone functionality.
With the continuing migration of customers toward digital interaction channels, it is important
that all financial institutions focus on matching the technology offerings of big banks. However,
despite this migration, branch/ATM network size remains a key driver of selection, which
provides an advantage to larger institutions during the consideration and selection phases of
SATISFACTION
NUMBER
OF BRANCHES NEARBY
SATISFACTION WITH NUMBER OF ATMs NEARBY
the customerWITH
purchase
funnel.
SATISFACTION WITH NUMBER OF BRANCHES NEARBY
Big Banks
SATISFACTION WITH NUMBER OF ATMs NEARBY
Big Banks
7.70
Regional Banks
7.51
Regional Banks
Midsize Banks
7.49
Midsize Banks
7.67
7.42
7.35
Attribute Rating (10-point scale)
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Big Banks
Regional Banks
Midsize Banks
8.53
8.36
8.34
8.34
8.33
8.22
8.14
8.05
7.90
7.87
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banking services
8.11
8.02
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ofedited
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of ATM
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Source:
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Power
2014
Retail
Banking
Satisfaction
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4
J.D. Power Insights
Stuck in the Middle
Additionally, regional and midsize banks struggle to compete with the pricing (fees and interest
rates) and service excellence (branch and call center personnel) traditionally offered by credit
unions and community banks. These characteristics can have a direct impact on bottom-line
performance, as dissatisfaction with pricing and/or customer service are primary drivers of
attrition
amongWITH
retailCOMPETITIVENESS
banking customers.
SATISFACTION
OF INTEREST RATES
SATISFACTION WITH FEES
SATISFACTION WITH COMPETITIVENESS OF INTEREST RATES
Credit
Unions
SATISFACTION WITH FEES
Credit
Unions
7.92
Community
Banks
Community
Banks
7.37
Regional
Banks
7.84
Regional
Banks
6.55
Midsize
Banks
8.05
6.67
Midsize
Banks
6.69
7.03
Attribute Rating (10-point scale)
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Source: J.D. Power 2014 Retail Banking Satisfaction StudySM
Credit Unions
Community Banks
8.90
Promptness
of being served
at the branch
8.42
Courtesy of
branch rep
8.37
Subtitle of chart (if any):
Courtesy of
Axis
(if any)
call titles
center
repokay:
Second axis legend (if any) okay:
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Knowledge of
call center rep
9.00
9.08
9.10
Branch
8.79
8.75
8.81
8.46
Timeline of Changes/Updates
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Title of chart:
Midsize Banks
8.63
8.71
Knowledge of
branch rep
Elements
Promptness
ofData
being
served
provided
(Excel/Word/PPT):
8.10
on the phone
Regional Banks
Yes
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Banking
Satisfaction
Study
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Banking
Satisfaction
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J.D. Power Insights
Stuck in the Middle
Although regional and midsize banks tend to be “stuck in the middle” regarding the
competitive advantages they are able to offer, it is important to note that a number of banks
within these two segments have been able to establish a clear value proposition. For example,
customers of Arvest Bank and BB&T are highly satisfied with the size of their branch/
ATM network, and are also highly satisfied with the functionality of their digital interaction
channels (website, ATM, mobile). Therefore, these institutions are well-positioned to challenge
the competitive advantages traditionally enjoyed by big banks. Similarly, customers of Frost
Bank and Huntington Bank are highly satisfied with pricing and customer service, which are
advantages typically associated with credit unions and community banks.
In turn, each of the aforementioned financial institutions also experience above average results
regarding retention, advocacy, and share of wallet.
Arvest
BB&T
FrostBank
Huntington
Regional/Midsize Bank Avg.
Percent of Customers
100%
80%
60%
40%
77% 74% 78% 78%
73%
69%
51%
43%
63%
52%
51%
41%
40%
45%
37%
20%
0%
Definitely will NOT switch
Definitely will recommend
Deposit share of wallet
with institution
Source:
J.D. Power
20132013
Retail
Banking
Satisfaction
Source:
J.D. Power
Retail
Banking
SatisfactionStudySM
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6
J.D. Power Insights
Stuck in the Middle
CONCLUSION
In today’s competitive banking environment, it is important for all financial institutions to
develop and articulate a value proposition to both current and potential customers. Failure to
do so may negatively affect their ability to acquire and retain customers, thereby impacting
bottom-line performance. Regional and midsize banks may find it particularly challenging to
establish a value proposition, as the size of these institutions places them between big banks
and credit unions/community banks in terms of traditional offerings. Finally, it is critical for
financial institutions to not only develop a clear value proposition, but also to implement
organizational changes that will enable them to provide the level of service required to deliver
on the competitive advantages they choose to promote.
Recommendations:
■■ Clearly define why customers should choose you and why they should continue to bank
with you, which is your value proposition.
■■ Determine what defines success and set specific goals to achieve it.
■■ Evaluate your bank’s current performance.
■■ Ensure all employees understand what you are trying to accomplish; why you’re
implementing the change; what they need to do to support your strategic goal; and what
they will be held accountable for.
■■ Questions to ask:
—— Can you measure your performance today?
—— What metrics should you use to monitor your success?
—— How does your performance compare with competitors?
—— How are you trending, compared with past performance and competitors?
© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.
7
J.D. Power Insights
Stuck in the Middle
CUSTOMER EXPERIENCE FRAMEWORK
CUSTOMER EXPERIENCE FRAMEWORK
BRAND
Define
customer
experience
Reward and
recognize
Recruit and
hire right
people
Provide
leadership
and coaching
Provide
tools and
training
Define Value Proposition:
“Why Choose You?”
Integrate CE metrics
into performance
and incentive plans
Measure
customer
experience
Leverage
customer
feedback
Processes
Product
Pricing
Problems/
Complaints
Communication
Technology
Place
How J.D. Power can help:
■■ Syndicated benchmarking studies
—— Help in evaluating strengths and weaknesses, compared with competitors
—— Provide data to help you understand trends in performance
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initiatives
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8