U.S. COMMUNITY BANK RESULTS. Creating a New Level of Bank Service for Community Bank Customers U.S. COMMUNITY BANKS 1

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1 U.S. COMMUNITY BANK RESULTS Creating a New Level of Bank Service for Community Bank Customers U.S. COMMUNITY BANKS 1

2 CREATING A NEW LEVEL OF SERVICE FOR U.S. COMMUNITY BANK CUSTOMERS Welcome to the third annual FIS Performance Against Customer Expectations (PACE) Index report, which details how the expectations of today s community bank customers are shifting and analyzes how institutions are performing relative to those expectations. Prior PACE reports revealed what were, at the time, emerging shifts in customer priorities and hinted at what are now clear consumer trends, such as the popularity of digital payments. Similarly, the 2017 edition of PACE contains useful observations about the current state of community bank performance as well as directional insight into what the months and years ahead may hold. KEY INSIGHTS The bar continues to rise for digital access and payments, now table stakes in the battle to attract and retain younger consumers as well as growing in importance among older consumers. Community banks are far behind other banking providers in leveraging credit cards to improve perceptions and promote loyalty with consumers, thus missing out on customer analytics data as well as revenue. Opportunities abound for community banks to deepen relationships with senior millennials and Gen Xers by closely tying loan and investment offers to consumers anticipated life events. Community banks cannot win millennials away from bigger banks without delivering on their desires for mobile access, easily accessible information and tools online, and efficient service (not necessarily in person). U.S. COMMUNITY BANKS 2

3 SHOWING WHAT MATTERS IN CONSUMER BANKING PACE measures how well the expectations of U.S. community bank consumers are met based on the performance of their primary banking provider. We asked more than 500 community bank customers to rank their primary banking providers according to 18 key performance indicators (KPIs) and then ranked their primary provider s performance in these areas. The results are compiled into a score that reveals to participating institutions how they are performing relative to their peers. We then cluster attributes into three groups according to how strongly they relate to one another. RUN CONNECT GROW Fairness no hidden charges/fees Safety trusted to protect my money Simplicity easy to understand and use products and services Transparency easy to understand pricing/terms Security protect personal identity Reliability follows through on promises Omnichannel consistent information at points of contact Digital Payments digital transaction options Leading-Edge Products more innovative products/services than other banks Connected anytime anywhere access through online/mobile Immediate systems that respond fast enough for me Recognition rewards me for my business Advice trusted advice to help me manage my money Aspirations helps me achieve financial goals important to my life Customized tailors products to my needs Control helps me gain control of my finances In-Person Service face-to-face personalized service Anticipates anticipates my future needs For details about our methodology, visit the PACE website at U.S. COMMUNITY BANKS 3

4 IN GENERAL, CONSUMERS ARE HAPPIER WITH COMMUNITY BANKS Overall, U.S.-based community banks saw their PACE score rise 4 points over 2016, to 96, indicating that they are making strong progress in meeting consumer expectations. Compared to other bank categories, community banks are outperforming the top 50 global banks and regional banks in meeting their customers expectations but trail credit unions by 3 points. PACE SCORES FOR ALL U.S. BANK TYPES Top 50 Global Banks Regional Banks Community Banks Credit Unions U.S. COMMUNITY BANKS 4

5 STILL WEAK IN CORE FUNCTIONS However, digging into the underlying PACE scores, community banks exhibit the same weak performance as other banks in meeting consumer expectations for certain KPIs, though not by as large a magnitude. KPI Expectation SAFETY SECURITY FAIRNESS RELIABILITY SIMPLICITY TRANSPARENCY Below Expectation Above Expectation RUN In terms of how they RUN, community banks still fell short of expectations across the board, most notably in terms of Fairness. Only in Simplicity did they manage to meet consumer expectations. When measuring how banks CONNECT with customers, community banks outperformed expectations in most categories, likely due to recent investments in digital banking. Their dramatic underperformance in Recognition suggests work remains in acknowledging and rewarding customer loyalty. Community banks also fell short in most areas where they can GROW their businesses, not meeting customer expectations for KPIs like Aspirations, Control and Advice. Unlike the broader U.S. consumer PACE score, consumers ranked In-person Service as their top priority for community banks and the banks handily outperformed here. KPI Expectation OMNICHANNEL CONNECTED RECOGNITION DIGITAL PAYMENTS IMMEDIATE LEADING-EDGE PRODUCTS Below Expectation Above Expectation CONNECT KPI Expectation IN-PERSON SERVICE ASPIRATIONS CONTROL ADVICE CUSTOMIZED ANTICIPATES 13 Below Expectation Above Expectation +26 GROW U.S. COMMUNITY BANKS 5

6 NOT SERVING THE NEXT GENERATION OF BANK CUSTOMERS These data points show that community banks are making progress in offering digital solutions but are still slow to adapt to consumers changing needs for access and financial products and services that align with events in their lives. However, these supposed digital gains are put into very real perspective when looking at the makeup of community banks customers: they re overwhelmingly older and far less active in their banking practices than customers of bigger banks. 57% of community banks customers are over age 51. In fact, 57 percent of the customers of community banks are above the age of 51. The demographics where they have the most potential for growth and to sell additional services senior millennials and Gen Xers, those with similar high incomes and banking habits only account for 37 percent of their customer base currently. Without focused effort in improving services and investment in the desired technologies, community banks as a category may face a dramatic shakeout. GENERATIONAL COMPOSITIONS OF TYPES OF PRIMARY BANKING PROVIDERS Top 50 Global Credit Union Regional Bank Community Bank 5% 19% 5% 11% 6% 12% 7% 6% 12% 30% 23% 41% 20% 31% 22% 50% 25% 23% 23% 29% Young Millenials (18 25) Senior Millenials (26 36) Gen Xers (37 51) Boomers (52 70) Silent Generation (71+) U.S. COMMUNITY BANKS 6

7 DIGITAL IS NOT OPTIONAL Right now, 72 percent of all consumer interactions with a community bank are done digitally, via online or mobile banking options. This cuts across all consumer segments, from millennial to baby boomer, and makes it clear that digital banking is the foundation of the modern customer relationship. Similarly, mobile banking is quickly taking on a greater proportion of digital banking, a trend we can expect to accelerate in the coming years. AVERAGE NUMBER OF CONTACTS IN THE PAST 30 DAYS Mobile phone or tablet Online (banking, chat, secure ) Branch and ATM Young Millenials (18 25) Senior Millenials (26 36) Gen Xers (37 51) Baby Boomers (52 70) On average, 72% of customer interactions with a community bank are digital. U.S. COMMUNITY BANKS 7

8 LIFT OFF FOR MOBILE TRANSACTIONS Growth in mobile transactions and payments year over year shows mobile adoption is accelerating, but coming from a slower start at community banks. Mobile adoption is being driven by millennials, especially young millennials, who are far more likely to use a community bank s mobile app and make purchases with it. However, millennials are more than twice as likely to use an outside app for person-to-person (P2P) payments rather than their primary banking provider s app. Community banks are simply not competing well (or at all) in this arena, and their consumers are adopting alternatives, like Venmo. PAST 30 DAY MOBILE TRANSACTIONS Paid an individual person by using a payment service s mobile app (not your financial institution s) <1% 5% Paid a bill from your bank account 31% 32% Deposited a check remotely into your account by taking a picture of it with a mobile device 3% 9% Paid a bill from a prepaid card account 2% 5% Paid an individual person by using your financial institution s mobile app Transferred funds between bank accounts Made a purchase by using a mobile app that you can use at many different retailers 2016 <1% 3% 12% 17% 2% 5% 2017 U.S. COMMUNITY BANKS 8

9 WHERE BANKING MEETS LIFE As prior PACE data points indicate, there is great opportunity for banks of all sizes to improve their service relationships with customers. This is especially true when it comes to helping customers find, evaluate and select financing and investment products related to key life events such as buying a house. School tuition Buying a house Renovating/ updating a house Buying a car Investing for your future Planning for Retirement 21% 24% 19% 26% 10% 32% 17% 25% 8% 19% 19% 11% 14% 38% 17% 25% 24% 16% 2% 18% 14% 23% 33% 9% 6% 11% 18% 19% 26% 5% 11% 16% 23% The primary banking provider is often the first choice of consumers when they want financial assistance. My primary financial institution A financial institution other than my primary financial institution A friend or family member Another source I will not turn to an outside source for help I don t know U.S. COMMUNITY BANKS 9

10 LOSING CUSTOMERS BEFORE CONTACT IS MADE However, first-choice intentions are rarely realized, as competitors step in to capture those customers often before they have contacted their primary bank. This can be seen in the low percentage of key accounts held by the consumers primary bank. Gen Xers, who earn the most with an average $69,900 annual income, are the most notable opportunity for community banks, given how few card and investment accounts they have with their primary bank. BEING THERE IN THE MOMENT OF NEED The PACE study found that supporting Aspirations is where banks have the best opportunity to GROW and that means being there precisely when they re needed. Community banks need to better coordinate outreach and marketing with the likelihood of key events in customers lives. The key to driving such touch points is in-depth, targeted analysis of the demographic, transactional and socioeconomic data within banks own systems. PERCENTAGE OF ACCOUNTS HELD BY PRIMARY BANKING PROVIDER Credit card account 59% 42% 29% 36% Automobile loan 45% 58% 40% 36% Young Millennials (18 25) Senior Millennials (26 36) Home mortgage 56% 50% 40% 40% Investment accounts 50% 42% 21% 38% Gen Xers (37 51) Baby Boomers (52 70) NEAR-TERM LIFE EVENTS PLANNED (WITHIN MONTHS) Buying a car 51% 33% 21% 19% Planning for retirement 18% 16% 27% 23% Paying tuition 31% 9% 14% 1% Investing for your future 45% 30% 21% 11% Renovating/ updating a house 15% 23% 11% 11% Starting a business 3% 0% 2% 0% Buying a house 31% 21% 11% 4% Paying for a wedding/ engagement ring 13% 14% 1% 1% Young Millennials (18 25) Senior Millennials (26 36) Gen Xers (37 51) Baby Boomers (52 70) U.S. COMMUNITY BANKS 10

11 TOP OF PHONE In today s digital world, top of phone is fast becoming top of mind for U.S. consumers, especially millennials but ever more so for Gen Xers and baby boomers. This can be seen in shifting consumer viewpoints around the importance of having digital payment options. IMPORTANCE OF DIGITAL PAYMENT OPTIONS Digital payments increased in importance for all consumers but especially for young millennials Young Millennials Senior Millennials Gen Xers Baby Boomers DIGITAL PAYMENTS A MUST TO ATTRACT NEW CUSTOMERS When looking at usage rates of the primary bank s mobile app for transactions and payments, the generational divide is again evident. Currently, community bank consumers are less likely to make mobile transactions or payments, likely due to the population s older skew. Providing up-to-date digital payments options, including mobile wallets and P2P options is an absolute must for winning over younger consumers, especially young millennials, and the importance of these options are quickly rising with older consumers, as well. Not offering these options is an Achilles heel for community banks. 74% Large bank customers who make mobile transactions or payments 68% Community bank customers who make mobile transactions or payments U.S. COMMUNITY BANKS 11

12 TOP OF WALLET CRISIS? Community banks are losing their consumers credit card business to competitors. Worse, half of community bank consumers don t have credit cards at all. The magnitude of the problem can be seen in that only 17 percent of community bank customers hold a credit card from the primary bank less than half of the U.S. average of 38 percent for all banking providers. ONLY 17% OF COMMUNITY BANK CUSTOMERS HOLD A CREDIT CARD FROM THEIR PRIMARY BANK 52% 8% 9% 31% Credit card with their primary financial institution only Credit cards with another financial institution only Credit cards with both the primary and other financial institutions Don t have credit cards CAN CREDIT CARD LOYALTY PROGRAMS IMPROVE SATISFACTION? Not being rewarded for their business with their primary banking provider is a common complaint among consumers. But, consumers who use their primary banking provider s card exclusively have a much less negative view of rewards they receive from their banking providers. Credit cards also represent a vehicle for helping consumers achieve their financial goals. Community banks still fall short of consumers expectations, but consumers who only use their primary banking provider s credit card are more likely to rate their community bank favorably in helping them achieve their aspirations and gain control over their finances. -27 DIFFERENCES IN SCORES REWARDS ME FOR MY BUSINESS HELPS ME ACHIEVE THE FINANCIAL GOALS THAT ARE IMPORTANT TO MY LIFE In the U.S., overall credit card penetration is 42% vs. 17% for community banks. -10 Credit cards with their primary financial institutions only -2 HELPS ME GAIN CONTROL OVER MY FINANCES Credit cards with another financial institution only U.S. COMMUNITY BANKS 12

13 IN CONCLUSION Even though they are generally well-liked by their customers, community banks face a myriad of headwinds and challenges some of which are the result of dramatic shifts in consumer tastes and some which are due to organizational inertia. Most critical is that community banks must reach out to, win over and retain more high-income, highly active millennial and Generation X customers. Doing this will require meeting consumers high expectations for anywhere, anytime access to banking services, including digital payments, as well as taking on a more advisory role in the customer relationship. Not doing this, or not doing it quickly and effectively, may threaten community banks as a category. U.S. COMMUNITY BANKS 13

14 ADDITIONAL U.S. SURVEYS CONSUMER BANKING SURVEY Surveyed 1,000 banked consumers. Respondents qualified based on having a banking relationship and household financial decisionmaking authority Surveyed 504 community bank customers Expanded segmentation to show differences between younger and older millennials SMALL AND MIDSIZED BUSINESS BANKING SURVEY (NEW) Surveyed nearly 500 U.S. businesses with minimum of five employees and revenues up to $500 million 50 percent of companies had 50 to 500 or more employees Two-thirds of companies in business for more than 10 years More than 50 percent of companies serve both B2B and B2C markets Companies spread across U.S. geographic regions One-third of companies have more than one location U.S. COMMUNITY BANKS 14

15 PACE 2017 Contact Us For more information about the FIS PACE Index, please contact us. Stephen Kane Senior Vice President FIS Global Banking and Payments Kim Snider Senior Vice President FIS Corporate Communications About FIS FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting, and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 57,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor s 500 Index. For more information about FIS, visit Follow us on Facebook (facebook.com/fistoday) and Twitter (@ FISGlobal) FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties marks are the property of their respective owners. U.S. COMMUNITY BANKS 15