Early Adopters Enjoy Branchless Banking but Represent Only a Fraction of Retail Bank Deposits, J.D. Power Finds

COSTA MESA, Calif.  — Direct banks are emerging as an increasingly significant threat to traditional banks. These institutions, which lack a physical bank branch, are scoring high marks for customer satisfaction, advocacy and loyalty, according to the J.D. Power 2017 U.S. Direct Banking Satisfaction Study,SM released today. In fact, overall satisfaction scores for direct banks are higher than those for traditional retail banks, though they currently represent just 6% of total bank deposits in the United States.

The inaugural study measures overall satisfaction with direct banks based on five factors (in order of importance): channel activities; products and fees; communication; new account opening; and problem resolution.

“Consistent with the trends we’ve seen in mobile banking, customers who take the leap of faith with branchless banking are having very favorable experiences,” said Bob Neuhaus, financial services consultant at J.D. Power. “Look for continued rapid growth from branchless banks and expansion of branchless strategies from traditional banks, especially outside of their branch footprints.”

Key Findings

  • Direct banks outperform traditional retail banks: The overall satisfaction score for direct banks is 865 (on a 1,000-point scale), which is 49 points higher than the overall satisfaction score of traditional branch-based retail banks in the J.D. Power 2017 U.S. Retail Banking Satisfaction Study.SM Direct banks also perform well vs. retail banks with respect to advocacy and loyalty, with 76% of direct bank customers saying they “definitely will” recommend their bank and 72% saying they “definitely will” reuse their bank. These compare with just 57% and 56%, respectively, among traditional bank customers.
  • Rapid growth in an emerging market: Over the past three years, direct banks have increased deposits by 31%, with a great deal of that growth coming organically in the form of new deposit accounts, which are up 29% over the same period. However, direct banks currently represent just 6% of total deposits in the country.
  • Direct banking customers are educated, wealthy and young: From a demographic perspective, 67% of direct bank customers have a bachelor’s degree or higher; 65% are either mass affluent1 or affluent; and their average age is 47. Direct banks also have a greater number of minority customers than traditional banks and their customers are more likely to be employed full-time.

Study Rankings

Capital One 360 ranks highest in overall satisfaction with a score of 882 and has the lowest incidence of ATM fees; overdraft fees; and fee structure changes of all direct banks in the study. Also, Capital One 360 receives particularly high ratings for ease of navigating and appearance for both online and mobile platforms.

Discover Bank ranks second with a score of 869. E*TRADE Bank ranks third with a score of 868. Illustrating the tight competition in the mobile app space, just 59 index points separate the highest- and lowest-ranked performers in the study.

The 2017 U.S. Direct Banking Satisfaction Study is based on responses from 2,629 direct bank customers nationwide. The study was fielded in April 2017.

To learn more about the U.S. Direct Banking Satisfaction Study, visit http://www.jdpower.com/resource/us-direct-banking-satisfaction-study.

J.D. Power is a global leader in consumer insights, advisory services and data and analytics. These capabilities enable J.D. Power to help its clients drive customer satisfaction, growth and profitability. Established in 1968, J.D. Power is headquartered in Costa Mesa, Calif., and has offices serving North/South AmericaAsia Pacific and Europe. J.D. Power is a portfolio company of XIO Group, a global alternative investments firm headquartered in London, and is led by its four founders: Athene LiJoseph Pacini, Murphy Qiao and Carsten Geyer.

Study Rankings

Customer Satisfaction Index Ranking
(Based on a 1,000-point scale)       

JDPower.com Power Circle Ratings™
For Consumers

Capital One 360                    

882

5

Discover Bank                       

869

4

E*TRADE Bank                      

868

4

Industry Average                      

865

3

Nationwide Bank                       

856

3

State Farm Bank                       

854

3

Charles Schwab Bank                 

851

3

Ally Bank                           

849

3

Bank of Internet                   

824

2

Scottrade Bank                    

823

2

USAA*                                 

895

5

*USAA is not eligible for official study ranking because of customer eligibility/membership requirements.

Power Circle Ratings Legend
5 – Among the best
4 – Better than most
3 – About average
2 – The rest

Award-Eligible Direct Banks Included in the Study

Company            

Key Executive                

Company Location

Ally Bank                  

Jeffrey Brown                     

Detroit, Mich.

Bank of Internet          

Gregory Garrabrants               

San Diego, Calif.

Capital One 360          

Richard D. Fairbank           

McLean, Va.

Charles Schwab Bank  

Walter Bettinger II                    

San Francisco, Calif.

Discover Bank              

David W. Nelms                                 

Greenwood, Del.

E*TRADE Bank   

Karl Roessner           

New York, N.Y.

Nationwide Bank  

Stephen Rasmussen       

Columbus, Ohio

Scottrade Bank     

Rodger Riney           

St. Louis, Mo.

State Farm Bank    

Michael Tipsord          

Bloomington, Ill.

 

1 An affluent individual is defined as someone with an annual income of $150,000 or more and investable assets of $250,000 or more. A mass affluent individual has an income of $150,000 or more and investable assets less than $250,000 or has an income less than $150,000 and investable assets of $100,000 or more.

Source: J.D. Power

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