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This is why direct banking ranks #1 in customer satisfaction

Kylee Wooten
Posted by Kylee Wooten

…and tips for traditional banks looking to close the gap

Even though an element of human touch is still a major consideration to loan applicants, direct banks, or branchless banks that operate online, are setting the bar for customer satisfaction. According to the J.D. Power 2018 U.S. Direct Banking Satisfaction Study, direct banks recently earned a higher satisfaction score among U.S. customers than traditional retail banks. Direct banks scored 836 on a 1,000-point scale, 57 points higher than their traditional branch-based counterparts.

“Direct banks have traditionally occupied a niche of the retail banking marketplace where they serve mainly as secondary banks with competitive products and strong digital- and phone-based tools that drive high levels of customer satisfaction,” said Bob Neuhaus, financial services consultant at J.D. Power. Although direct banks represent less than 10 percent of the industry, they provide an example of several key components that traditional retail banks  should consider in their quest to close customer satisfaction gap.

Mobile experience

A key differentiator between direct banking and traditional banking is the digital experience. Online- and mobile-based capabilities provide greater conveniences to customers. The entire lending workflow is in one central location – no need to go into a branch to sign or hand-deliver. The mobile customer satisfaction gap narrowed this year and will likely continue to shrink as more legacy banks are realizing the value of digitizing their lending process and partnering with fintechs.

More functionality

This is probably obvious, but direct banks offer a greater repertoire of products online. Direct banking customers skew on the younger side, with the average age of 47, compared to 53 for traditional bank customers. This tech-savvy customer-base is particularly drawn to online functionality and expanded capabilities. Without the focus on a branch connection for consumers, there is increased emphasis on digital services. According to the report, direct bank customers who were offered more than five features on their bank’s website or app were significantly more satisfied than those whose apps or sites offered than five features. Traditional banks looking to target their younger customer base should heavily invest in their online features. According to a research report by Fiserve, Millennials are using mobile banking nearly three times more than other generations – and they’re prepared to switch. Sixty-five percent of Millennials would be open to switching banks if a different option offered more mobile services.

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Social media

Over one-third of bank customers who signed on for a bank offering in the last year reported that their decision was influenced by social media. Additionally, nearly half of Gen Y, Gen Z and “mass affluent” customers (those with a household annual income of $150,000 or more) cite social media being influential, the J.D. Power study shows. While traditional banks rank higher in the overall number of conversations on social media, the number of positive customer service-related conversations favors direct banks. Since direct banks miss the human interaction that brick-and-mortar banks have, social media becomes an impactful tool to connect with customers and share valuable content. For traditional retail banks dealing with more complaints than compliments on social media, it’s time to think of social media as another customer service department. Not only is it an opportunity to solve your customers’ issues, but it’s also an opportunity to publicly brand your customer service and your institution at large. Simply taking the time to write back to customers who reach out via social media shows an attentive, interactive human side to a company.

Customer satisfaction plays a very important role in the decision-making process for customers seeking to choose a bank. Clearly, the digital experience plays a critical role in customer satisfaction, which is predominately why direct banks have been outperforming their traditional retail banking counterparts in customer satisfaction. The gap is closing a bit, particularly in mobile, for traditional and direct banks. As more traditional banks move towards digitizing their processes and partnering with fintechs, it will be interesting to see how the two stack up in next year’s study.

tags: customer experience, customer service, digital lending, fintech, mobile banking, mobile experience, open banking, social media