Drop in Loyalty and Impact of Premiums Should Concern Bankers

According to the 2010 U.S. Retail Bank New Account Study released by J.D. Power yesterday, large banks captured a higher proportion of prospective customers compared with regional banks. Based on responses from 3,770 consumers who shopped for a new banking account or a new financial institution during the past 12 months, larger banks acquired 70 percent of prospective shoppers while regional banks secured only 59 percent of these shoppers.

According to the study, the higher capture rate by large national banks was significantly impacted by the use of promotional gifts and attractive short-term interest rates, with 24 percent of those opening an account with a large national bank saying that was the primary reason for selecting the bank (compared to only 13 percent for regional bank customers).


What should be concerning for those banks that are using premiums or short-term rates as an incentive for new customer acquisition is that almost one quarter of these customers say they "definitely will" or "probably will" switch banks again in the next 12 months. This was almost twice as likely than for those customers who opened an account for another reason (convenience, referral, safety, etc.).

"While offering a promotional gift, cash award or attractive short-term interest rate may lead to increased selection by customers, it is important to keep in mind that the increased selection rate doesn't necessarily lead to an increased retention rate," said Michael Beird, director of the banking practice at J.D. Power and Associates. "The short-term boost in acquiring customers can become a retention challenge in the long run."

The study also found that when customers decided to avoid a particular financial institution, brand image was the key driver, with larger banks experiencing the highest avoidance rate. This correlates with the J.D. Power and Associates 2010 U.S. Retail Banking Satisfaction Study released last month that found that the likelihood of switching was significantly higher for customers of larger banks as opposed to smaller banks (only 32 percent would definitely not switch from a larger banks compared to 41 percent for smaller banks).

These two studies should be a bit of a wake-up call to banks interested in acquiring new customers. Not only is it more important than ever to improve the customer experience and customer advocacy, but there should be a stronger emphasis on acquiring a potentially a higher quality of customer as opposed to simply a higher quantity of customers.

Credit Card Satisfaction (and Confusion) Increases According to New Study

Despite being confused by the myriad of changes made by many institutions around rewards structures and terms, consumer satisfaction with their credit card issuer increased for the fourth straight year according to a just released 2013 U.S. Credit Card Satisfaction Study from J.D. Power.

According to the study, American Express continued their dominance of the credit card satisfaction ratings for the seventh straight year, with Discover Financial Services being ranked second followed by Chase at third.

The study, which surveyed 14,000 credit card holders in May and June of this year, found that overall satisfaction with credit cards rose 14 points in 2013 from 2012, to 767 on a 1,000 point scale. This was the highest level of satisfaction since the study was initiated in 2006. Satisfaction is measured by examining six key factors, including interaction, credit card terms, billing and payments, rewards, benefits and services and problem resolution.

"The fact that the economy is improving and consumers generally feel better about their personal financial situation is certainly helping to improve satisfaction with credit card issuers, especially considering there was such instability in the industry just a few years ago", said Jim Miller, senior director of banking services at J.D. Power. 

The study found that 27 percent of households reported being better off this year, up from 23 percent in 2012 and only 20 percent in 2011. Only 17 percent said they were worse off which was significantly better than 23 percent last year and 29 percent in 2011. In addition, fewer card holders saw rate increases in 2013 (5 percent), compared with 6 percent a year ago.

Another potential reason for the increased satisfaction could be recent regulations surrounding disclosure and credit practices. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act, signed in 2009 banned egregious billing practices, capped fees and limited interest rate hikes. It also required clearer disclosures.

"I think we can attribute much of the overall satisfaction to the CARD Act", says Ruth Susswein, deputy director of national priorities at the consumer advocacy and financial literacy group Consumer Action. This is supported by the finding that the largest improvement in satisfaction was in the category of 'credit card terms', which improved by 18 points from 2012 levels.

Consumer Confusion Still an Issue

Despite improved satisfaction ratings overall, the credit card industry still is impacted by consumers not fully understanding their reward structure, benefits and terms. According to the study, fewer cardholders reported they 'completely' understood how to earn rewards on their cards (59 percent in 2013 versus 66 percent in 2012). Roughly one third of the card holders surveyed said they were unaware of their card's benefits. 

Some of this confusion could be attributed to the many changes made to most rewards programs over the past 18 months (many programs have moved away from a clear 'points' program to a more confusing 'merchant-funded reward' structure).

Surprisingly, almost three-quarters were not clear about the interest rates they were being charged and 31 percent didn't understand late payment fees. "Customers who use their card's benefits spend an average of $400 more per month on their card, compared to those who are aware of these benefits but do not use them so clearly this is an area of importance to card issuers, said Jim Miller from J.D. Power. 

"While most customers change cards for a better rewards program, they often don't fully understand the rewards offered with their current card. There is a clear opportunity for issuers to better communicate rewards programs and benefits to not only keep customers loyal, but also attract new customers", says Miller.

Source: J.D. Power 2013 U.S. Credit Card Satisfaction StudySM  
© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.

Source: J.D. Power 2013 U.S. Credit Card Satisfaction StudySM
© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.

American Express Still Tops in Satisfaction

The satisfaction model used by J.D. Power looks at six factors (interaction, credit card terms, billing and payment, rewards, benefits and services and problem resolution), with five sub-factors being reviewed within the interaction category (website, online chat/email, automated phone, CSR and mobile interaction). The study also includes approximately 60 attributes that are rated based on customer experience.

Since the inception of the J.D. Power Credit Card Satisfaction Study in 2007, American Express has been ranked highest in overall customer satisfaction among 11 of the largest credit card issuers in the U.S. In 2013, American Express achieved a score of 816 (out of 1,000) and performed best in all categories measured, with notable performance in the areas of rewards, benefits and services and billing and payment. American Express again received top honors related to Customer Service Representative (CSR) interaction.

It is clear that American Express has not rested on their laurels despite being consistently ranked highest in customer satisfaction. Over the past year, American Express has introduced new offerings and has expanded digital support to improve the customer experience. Some of the enhancements include smartphone enabled gift cards, real-time purchase, account balance and alerts through Passbook, account alerts through a Facebook servicing app, online customer forums, and enhanced benefits on specific Amex and partner card offerings.

After American Express, Discover was ranked second in 2013 with a score of 812, performing well in credit card terms, interaction and problem resolution. The only other credit card issuer that ranked higher than the overall average score of 767 was third ranked Chase, with a score of 783.

Source: J.D. Power 2013 U.S. Credit Card Satisfaction StudySM
© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.

Key Performance Indicators Provide Guidance for Success

Key Performance Indicators (KPIs) are considered the best practices that have the most influence on customer satisfaction. The 2013 J.D. Power study identified 14 core KPIs, with each having a different level of importance from the customer perspective. The KPIs were segmented into three levels based on prioritization that was determined by the potential impact on satisfaction as well as the percentage of interactions that meet the KPI. 

The importance of a satisfactory website experience is clear. The range of services that can be performed on the site, the usefulness of information provided and the clarity of this information all had an impact on the improved scores this year.

Based on the chart below, issuers should place initial focus on KPIs with the greatest potential impact.

Source: J.D. Power 2013 U.S. Credit Card Satisfaction StudySM

© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.

The importance of the KPIs identified is illustrated best when J.D. Power associates the meeting of KPIs with both satisfaction and bottom-line metrics. According to the research, when KPIs are missed, satisfaction declines considerably, with satisfaction falling below industry averages when an issuer misses more than 3 KPIs. Additionally, as more KPIs are missed, advocacy and loyalty metrics also decline measurably as shown below.

Source: J.D. Power 2013 U.S. Credit Card Satisfaction StudySM

© 2013 J.D. Power and Associates, McGraw Hill Financial. All Rights Reserved.

Future Opportunity

While not shown as a specific KPI, the sub-factor of mobile functionality had an impact on satisfaction, with ease of use and speed of completing a transaction being important. However, less than one-quarter of customers can currently use a mobile app to view their card benefits, redeem rewards or get special promotional offers. It was also found that there has been a much slower adoption of mobile app technology among credit card customers compared to retail banking customers (5% vs. 19% respectively) possibly reflecting the lack of functionality available.

It is expected that mobile offerings and functionality may be the next battlefield for customer satisfaction, providing a differentiator that doesn't currently exist in a relatively 'me too' product category.

For more information on this study, visit the J.D. Power website here.