COSTA MESA, Calif.– As credit unions look to reverse a slide in consumer satisfaction, they may want to pay more attention to the current trend toward fee reduction (and even fee removal), particularly NSF fees, according to a new analysis from J.D. Power.
In releasing the recent findings its research, J.D. Power said the rethinking around fees is an “important part of that evolution and may just go down in history as the tipping point when retail banks successfully averted the threat of disruption by putting their customers’ needs ahead of short-term revenue.”
The J.D. Power research is being highlighted here as part of a series in launched by CUToday.info in response to research conducted by the University of Michigan that found credit unions, for the third year in a row, finished behind banks in a national survey of American consumers when it comes to “satisfaction.” As CUToday.info was first to report, in the most recent American Customer Satisfaction Index (ACSI), credit unions even hit a “historic low” when it comes to consumer “satisfaction” with their financial institutions.
The objective of this CUToday.info series is to deliver more actionable strategies to credit unions so they may more effectively respond.
The J.D. Power analysis was released in conjunction with the findings of a new study by the company that found 81% of retail bank customers say they feel strongly that banks are in a position to help them improve their overall financial health.
Meanwhile, a separate study has found that overall customer satisfaction increases 229 points (on a 1,000-point scale) when customers are offered advice/guidance that completely meets their needs.
Strong Effect on Viewpoints
But the company also found fees have a strong effect on customer viewpoints.
The results were released, respectively, as part of the J.D. Power Financial Health and Advice Program, and the 2021 U.S. Retail Banking Advice Satisfaction Study.
Not Duplicating Blockbuster
In releasing its findings, J.D. Power said the nation’s banks are not following the path blazed by Blockbuster by ignoring changing consumer trends, and have instead responded to fintechs and digital payment services such as Venmo, Apple Pay and Zelle by rethinking “many of their tried-and-true business practices.”
Among those practices: moves to abandon or dramatically lower overdraft and other fees, as CUToday.info has also been reporting.
“The decision to move from a punitive, carrot-and-stick approach suggests that retail banks are recognizing that the role they play in their customers’ lives needs to evolve beyond service provider and into more of a hub of financial advice and guidance,” JD. Power said. “And that may just be the key to staying relevant amid growing threats from fintechs.”
The Rise of the 'Benevolent Banker'
The response to changing market attitudes by the nation’s biggest banks was dubbed by J.D. Power as the “rise of the benevolent banker.”
The company noted that while its research has found a vast majority of retail bank customers do fee strongly banks can help them improve their financial health, there is a “flip side” to the phenomenon.
“Our data shows that retail bank customers are more than twice as likely to switch banks if they’ve been charged a fee of any kind at any point over the last three months versus customers who have not been charged any fees,” J.D. Power said. “Across every metric—customer satisfaction, Net Promoter Score (NPS), customer engagement—punitive bank fees have a significant negative influence on customers’ relationships with their banks.”
J.D. Power went on to note “banks have begun to recognize this and many of the largest national retail banks have launched initiatives focused on delivering personalized advice to customers. These efforts are paying off, too. The top four performing banks in our U.S. Retail Banking Advice Satisfaction Study last year were all national banks.”
Uneven Recovery Spotlights Fees
Other findings released by J.D. Power as part of its research:
- The U.S. economy’s K-shaped recovery is playing out unequally for different economic groups. “In fact, while banking customers may no longer find themselves on the brink of ruin the way they were in early 2020, many of the existing financial problems that existed prior to the pandemic are still prevalent,” the company said.
- As of November 2021, just more than one-third (37%) of retail bank customers are classified as financially healthy, according to J.D. Power data. The largest segment of retail bank customers (40%) is classified as vulnerable, while 12% fall into the overextended category and 11% are stressed.
- “This economic backdrop is critical context for the recent announcements by major banks to remove or dramatically lower overdraft fees,” J.D. Power said. “Our Retail Banking Study data indicates that, during the last three months, 4% of healthy customers paid overdraft fees while 18% of the vulnerable segment owed the bank money due to overdrafts. There is limited variation between the overextended (7%) and stressed (8%) populations, but they are still paying overdraft fees at twice the rate of the healthiest banking customers. By eliminating these fees, Ally, Capital One and Bank of America are not only ensuring that all consumers are treated equally, but they are addressing the difficult circumstances through which many customers are currently living.”
- By the end of 2021, a record 41% of retail customers were digital-only and, although 24% of customers said they are worse off financially, overall satisfaction with retail banks increased. “That’s because 63% of retail bank customers said their banks completely supported them during the pandemic, which drove an 86% increase in likelihood of reusing that bank; a 60-point increase in NPS, and a 48% decrease in problems or complaints. Specific bank actions that customers associate with support during the pandemic are waiving charges/fees; supporting the community; offering additional advice/guidance; and providing late payment forgiveness.”
A Tipping Point
“The current trend toward fee reduction or removal is an important part of that evolution and may just go down in history as the tipping point when retail banks successfully averted the threat of disruption by putting their customers’ needs ahead of short-term revenue,” J.D. Power added.