Credit unions, small banks improve customer service to increase market share

Customers at credit unions are the most satisfied with their banking experience and the most likely to recommend their banking service to other people, according to a survey released by Prime Performance. The firm, which analyzes data for banks and provides tools and services designed to optimize client interaction, attributed the results to the hyper-personal experience customers receive at credit unions and small banks. “The public already is wary of large banks and totally rejects the ‘too-big-to-fail’ attitude that contributed to the recent recession,” said Jim Miller, president of Prime Performance. “Small banks get rave reviews from their customers and offer a friendlier and more trustworthy banking experience at a time when all of us need to see smiling faces and to hear warm greetings everywhere we do business.” Prime Performance surveyed 6,115 U.S. credit union and bank customers in May. Customers had either recently completed a teller transaction or opened a new banking account. Small banks have less than 300 branches, large banks have 300 to 4,000 branches and JPMorgan Chase (JPM), Wells Fargo (WFC) and Bank of America (BAC) were evaluated independently. The survey found that 88% of credit union customers and 88% of small bank customers were satisfied with their banking services, compared to 78% of large bank customers, 78% of Wells Fargo customers, 74% of Bank of America customers and 74% of Chase customers. Eighty-five percent of survey respondents who bank with a credit union said they would recommend their service to others, while 81% of small bank users said the same. Only 69% of large bank customers were likely to recommend their services, followed by 67% of Wells Fargo customers, 64% of Bank of America customers and 62% of Chase customers. Respondents to a J.D. Power and Associates survey agree. The survey measured the rate of customer satisfaction at several major-name banks by their mortgage loan processing times. The survey found the average processing time across the industry increased this year, up to 52.1 days from 46.9 days in 2009. David Lo, director of financial services at the marketing information firm, said although processing times negatively influence a customer’s experience with bank, there are certain factors that make a positive impact on customers — providing a welcome acknowledgment after a mortgage application is submitted and status updates of the loan included. Smaller banks such as Quicken Loans, MetLife Bank (MET) and PNC/National City Mortgage took the top spots on the J.D. Power customer satisfaction survey, while Chase, CitiMortgage/Citibank and Bank of America rounded out the bottom. However, in 2009 the Big Banks (also the top four mortgage originators) controlled more than half of the mortgage origination market share. Fred Becker Jr., president and chief executive officer of the National Association of Federal Credit Unions, said people still turn to the large banks despite low satisfaction rates because it’s historical commonplace. “Large banks have been originating mortgages since the ’70s,” Becker said in an interview with HousingWire. “We [credit unions] haven’t done a good enough job of getting the word out.” According to Becker, credit unions only accounted for 2% of the market for mortgage originations before the crisis. He said credit unions now collectively hold 10% of the market share because people are walking away from some of the larger financial institutions, but the market share should be more relative to the benefits credit unions pose against big banks. “By and large, your [mortgage] rate is going to be better at a credit union than at a bank and you’re going to pay less fees,” Becker said. In October, a Quality Mortgage Services, a quality control firm based in Franklin, Tenn., survey found that credit unions originate the highest quality mortgages. Becker added that the camaraderie of a credit union also enhances the banking and mortgage experience. Credit unions are owned and operated by its members. The credit union board is also elected by its members. “A credit union is considered of higher quality because a credit union is serving a plant,” he said. “If you’re working there and you don’t pay your loan, the borrower perception you have is you are impairing the other plant workers. If you’re from a big bank, you say, ‘Who cares if I don’t pay my loan?'” Prime Performance’s Miller said the current market, especially given customer satisfaction rates, could give credit unions and small banks the chance they need to thrive in the private market. “For the first time since banking deregulation in the 1980s, we have a David and Goliath situation where David has the tactical advantage,” Miller said. “Small banks may now have their best chance in years to gain market share and net income at the expense of bigger competitors.” Write to Christine Ricciardi. Disclosure: The author holds no relevant investments.