Retail banking customers less loyal

Retail banking customers in the UK are notably less loyal to their primary financial institutions than in recent years, due in part to perceptions that banks are more interested in pursuing profits than protecting customer best interests, according to the J.D. Power and Associates 2010 UK Retail Banking Satisfaction StudySM.

The study measures customer satisfaction with banks in the United Kingdom based on six factors that drive overall satisfaction: problem resolution; account activities; fees; product offerings; account information; and facility.

In 2010, 12 percent of bank customers in the UK say that they “definitely will” or “probably will” switch to another bank—an increase of two percentage points from 2008. In addition, the percentage of customers who indicated they have switched banks during the past 12 months has increased to 7 percent in 2010, compared with 3 percent in 2008. During the same timeframe, the brand image of banks has shifted in a negative direction, with customers perceiving that banks are considerably more profit-driven than customer driven and more inconsistent than reliable.

“Customers in the UK hold generally negative perceptions of their banks’ motives, particularly regarding the pursuit of profit at the expense of the best interests of their customers,” said Stuart Crawford-Browne, senior research manager at J.D. Power and Associates. “Overcoming these image problems will be an important step in salvaging customer loyalty rates, which are key to ongoing profitability.”

The study finds that overall satisfaction amongst retail banking customers averages 683 on a 1,000-point scale in 2010—considerably lower than satisfaction levels in other industries in which J.D. Power and Associates conducts studies in the UK. In comparison, satisfaction among new-vehicle owners and auto insurance customers in the UK averages 789 and 708, respectively.

In 2010, 21 percent of bank customers indicate that they have had a problem or complaint with their bank during the past 12 months. Compared with 2008, problems with poor customer service and website issues have increased more than other problem areas. Among customers who have experienced a problem, only 69 percent say that their issue was resolved. In addition, customers indicate they must contact their bank twice for their problem to be solved. Only four in ten customers who experienced problems say that they were provided with an estimate of how long it would take to resolve their issue. Furthermore, for approximately one in five of these customers, the timeline was not met. In comparison, average problem resolution times for customers of UK banks are nearly twice as long as those of customers of banks in the United States.

“Low levels of satisfaction with banks may be reflective of recent negative media coverage surrounding fees, tight credit and disparity in interest rates, as well as customer perceptions that banks assume that customers will put up with poor service,” said Crawford-Browne. “Despite efforts by many banks to become more customer-focused, there still appears to be a gap between accountholder expectations and banks’ ability to deliver on them. While UK bank customers historically have been slow to switch primary financial institutions, their frustration is mounting. It is increasingly likely that customer patience will reach a breaking point and, unless things change, take their accounts away from high street banks and go to institutions that will listen to and accommodate their needs.”

First Direct ranks highest in customer satisfaction with a score of 766, followed by The Co-operative Bank (759) and Nationwide (710). First Direct performs particularly well in three of the six factors: account activities, account information and product offerings. The Co-operative Bank performs particularly well in the fees and problem resolution factors.

“High-performing banks have differentiated themselves from the rest by offering simplicity, accessibility and personal service and cultivating an image that is customer-focused and conveys empathy to customer needs,” said Crawford-Browne. “Considerable changes are occurring in the banking industry—including new entries to the marketplace—and it will be interesting to see if banks are able to evolve along with changing customer expectations.”

The study finds that highly satisfied customers (scores averaging 850 or higher) are 10 times as likely to recommend or use additional services with their bank, compared with dissatisfied customers (scores averaging 600 or lower). Highly satisfied customers are also more loyal, and are six times less likely to switch banks compared with dissatisfied customers.

For ratings for banks in the UK, as well as tips for consumers on selecting a bank, visit JDPower.com.