Making sense of the ACSI Results for Banks and Credit Unions

Customer satisfaction is falling at credit unions and rising at banks according to the American Customer Satisfaction Index (ACSI) research conducted in the third quarter of 2010.  The research report shows banks scoring 76 in 2010, a 1.3% increase over 2009, while credit unions scored 80, a drop of 4.8% over last year.  While the credit union score of 80 is still higher than the overall bank score of 76, it is now the same as the “all other” category of banks (which includes all banks except for Wells Fargo, Citigroup, Bank of America and JP Morgan Chase). 

Explaining the results, Claes Fornell, founder of the ACSI, said “They (banks) are losing the most dissatisfied customers to credit unions and smaller banks…It’s a statistical quirk that if you lose your most dissatisfied customers, your scores will go up.”  Fornell went on to describe why credit unions’ scores fell due to their rapid growth “They’re getting an influx of new customers and it is more difficult to service a larger customer base with the resources.”  Prime Performance recently released results from the 2010 Bank and Credit Union Satisfaction Survey and some of our findings give additional insights into the ACSI results.

Making sense of the credit union scores

The 4.8% drop in the credit unions’ ACSI score is surprisingly large.  Certainly a significant increase in new members, coupled with resource cutbacks, could lower the credit unions’ score, but I see that as only a partial contributor.  Our research at Prime Performance shows that credit union member satisfaction is very high and that customers at credit unions tend to be more tolerant of problems than at banks.  96% of credit union members are satisfied with the wait time when in the branch or when contacting the call center, which is well above the industry average of 93%. 

If credit unions are not able to handle their increased volume of business, it would show up in wait time satisfaction and that is not the case.  Prime Performance research shows that credit union satisfaction is about the same as community banks (we use the term “small banks” in our study, which includes banks with less than 300 branches) and higher when it comes to loyalty measures (such as likely to recommend and likely not to switch banks).  The “All Other” category in the ACSI study is much broader and includes all banks except the four named mega-banks.  Because larger banks are included in this group, I expected the “All Other” category to score below credit unions.  While I cannot explain why the credit union score is not higher relative to the banks, I do have some other ideas on why satisfaction has gone down at credit unions, and they are not service related.  

In our study, we asked customers who had recently interacted with a teller or call center representative to rate the top 3 reasons why they stay with their bank (or credit union).  Across all banks and credit unions, 77% rated location as one of the top 3 reasons compared to 52% of credit union members.  Credit union and small bank customers clearly value service more than at the larger banks.  69% of credit union members and 68% of small bank customers rated good customer service as one of the top 3 reasons why they remain with their bank compared to the industry average of 58% (45% at Chase, 44% at Bank of America).  Credit Union members rate “low fees” and “good interest rates” as more important than bank customers.  52% of credit union members rated low fees as one of the top 3 reasons they stay, compared to the industry average of 33%.  In addition, 30% of credit union members rated good rates as one of the top 3 reasons, compared to the industry average of 13%. 

Since credit union members place more importance on rates and fees it seems reasonable that lower deposit rates and higher fees are hurting their ACSI score.  It is unlikely that these members are going to find better deals elsewhere and they remain loyal to their credit unions (our research shows that credit union members are the least likely to move their relationship in the next 12 months), but this still may result in lower overall satisfaction in ACSI’s survey results.

What does this mean for credit unions?  This is the time for credit unions to up their focus on service.  As customers move from large banks, the credit unions cannot afford to lower their service standards.  These new members are expecting a higher level of service and if credit unions cannot deliver, they will head back to the large banks or find a community bank that can meet their needs.  Customer service becomes even more important for existing members who are seeing less desirable interest rates and who are facing higher fees.  Credit unions cannot compete on location and convenience, but by refocusing on the customer experience, they can continue to take share from their bank competitors.

Making sense of the bank scores

The “All Other” bank category ACSI score of 80 has been the same for four years.  Satisfaction ratings for these banks did not fall during the financial crisis so it seems reasonable that the score has remained flat.  Wells Fargo’s scores increased with the addition of Wachovia.  Our 2010 survey shows that legacy Wachovia customers have higher satisfaction levels than the rest of the Wells Fargo footprint.  Wachovia was included in Wells Fargo’s 2009 results and the combined scores remain flat in 2010.  Citigroup and Bank of America both increased their ACSI scores by 1.5%. 

Claes Fornell’s explanation is that their most dissatisfied customers have moved to credit unions and smaller banks.  While this may account for some of the increase in their scores, it seems that this would also affect JPMorgan Chase and to a lesser degree Wells Fargo.  Citigroup and Bank of America have been two  of the most maligned banks in recent years and their scores declined from 2008 to 2009 as a result (some of which might also have to do with them taking their eyes off customer service while they were dealing with other issues).  I attribute much of their improvement as a return to pre-crisis levels (although Bank of America still has a way to go to get back to their earlier scores).  Chase is moving in the other direction, down 1.5% from 2009.  This is the third year in a row their score has declined. 

Prime Performance research confirms Chase belongs in last place among the mega-banks.  Clearly Chase does not make customer satisfaction a priority.  What I can’t figure out is if this is a strategic move or an oversight on their part.  Customers are attracted to Chase because of their vast network of branches and ATMs, as well as their frequent offers of over $100 to open a checking account.  In our 2010 survey, 35% of Chase customers who recently opened a new account said that a free gift or cash bonus was one of the top 3 reasons why they selected Chase.  This compares to 15% across the industry and only 6-8% at credit unions and small banks.  Our survey shows that customers who are attracted to banks because of cash bonuses are less satisfied with the service they receive compared to customers who select a bank for other reasons.  It may be that Chase’s acquisition strategy is effective enough that they don’t need to worry about retention or that they are more likely to have dissatisfied customers because they are attracting a large number of customers with cash offers. 

One aspect of the bank results in the ACSI research that still confuses me is how the overall score has increased by 1.3% in the last year.  If “All Other” and Wells Fargo are both flat, JP Morgan Chase is down 1.5%, how can the increase of 1.5% at both Citigroup and Bank of America result in the entire category increasing by 1.3%?  If all 5 components are equally weighted, the increase should be about 0.3%.  I assume that the all other category has more weight than the each of the 4 named banks, since the smaller banks still manage a majority of the customer relationships in the U.S., and therefore the overall increase for the bank category should be less than 0.2%.  I have sent an inquiry to the ACSI and I will let you know what they have to say.

What does this mean for banks?  Smaller banks continue to have the upper hand over large banks when it comes to customer satisfaction.  Similar to credit unions, as customers move their relationships to smaller banks, they need to show that they truly do provide a better customer experience.  There are already indications that the mega-banks are looking to improve customer service and over time they are getting less bad press.  Now is the time for the smaller banks to win market share and increase customer loyalty by increasing the focus on the customer experience.  The winners will be those banks who can consistently provide a high level of service.