It’s tough at the top so they say. Well, it’s even tougher at the bottom.
While the pressure has arguably never been greater for retail banks to conform to new standards of service expectation amid regulatory change and operational challenges, it is far from game over just yet.
The customer relationship is so much more nuanced than it ever was and the consumer more fickle. Gone seem the days of lifelong banking relationships; indeed the concept seems archaic. And customer loyalty is more transient than it used to be.
But all is not lost- many customers nowadays have myriad banking and payments apps and accounts.
The trick now is in differentiation, which should not and need not be at the expense of the customer relationship. The questions retail banks should be asking themselves, as per a J.D. Power Report, is what sort of relationship you want with your customer, and how close do you actually want to be?
According to Kearney’s Retail Banking Radar 2024, despite the year 2023 being “an exceptional year for retail banking” by a number of metrics, it was mainly down to higher interest rates, which are heading south soon.
87% of the overall growth was attributed to the higher interest rates fuelling an increase in Net Interest Income (NII).
At the same time, European retail banks have experienced higher costs, the height of which “have not been seen since 2017, except for the pandemic year of 2020”.
And when interest rates do start to decline, lenders may need to get more creative to mitigate the impact on their income line.
It suddenly doesn’t look so rosy when lending, deposits and customer base has always been the backbone of retail banking, particularly in the face of neo competition.
The RBR report claimed one in five consumers already says their primary bank is a challenger bank.
Enter the latest figures from across the pond indicating neobanks falling out of favour with customers on account of customer service – they very weapon these challengers have in their armoury of agility and data-analysed personalisation to harpoon incumbents.
A report by Charles Schwab details digital banks falling out of favour with consumers, as shown in a 2024 study by J.D. Power.
Direct or neo-bank checking account satisfaction levels declined 27 points on a 1,000 point scale to 688 from 2023. Problem resolution scores dropped 67 points and the total amount of time required to resolve a problem grew to 2.6 days in 2024, up from 1.9 days in 2023.
And even in the dashboard stakes, “the visual appeal, the range of services that can be performed and clarity of information provided via digital channels had significant declines.”
That’s right, folks, and it’s all down to the same interest increases. Higher rates and lower fees drew whole new cohorts of customers to online-only direct banks.
Yet it seems to be a case of burning twice as bright for half as long and the influx of customers and their expectation baggage has proved challenging for the challengers.
“Customers of online-only direct banks have higher levels of satisfaction than customers of traditional banks, but satisfaction among direct bank customers declined this year, particularly those with checking accounts,” said Paul McAdam, senior director of banking and payments intelligence at J.D. Power.
“Despite significant increases in deposit interest rates for both checking and savings accounts- but decreases in the proportion of customers who had to pay a fee or experienced a problem – overall satisfaction still declined,” McAdam continued.
Customers with problems had a “very tough time resolving them” causing satisfaction with the ease of problem resolution to “decline sharply”.
PAYMENTS CARDS & MOBILE OPINION:
Let’s be clear – we don’t need to bank bash here on either side of the legacy fence – and harsh economic climates ultimately impact all our pockets.
So it’s worth noting that lessons can be taught in both directions and the gnarly old banks haven’t been geronimoed by the young whippersnappers just yet. They may actually have a thing or two to teach them.
The post Light at the end of the tunnel for Retail Banks appeared first on Payments Cards & Mobile.