Two Banks That Excel In Customer Service – Banking can often feel like an us-against-them relationship.
To customers, it can feel as though their banks are trying to squeeze every penny out of them while being as unhelpful as possible.
But it doesn’t have to be that way. Some banks succeed by providing their customers with good products and services.
However, it might not seem that way to most bank customers because the handful of banks that dominate the industry’s market share generally offer their customers fairly unattractive terms – high fees on checking accounts and low interest rates on CDs, savings accounts and money market accounts.
How Successful Banks Compete
Look a little deeper, though, and you can find banks that are offering much better terms to their customers. This isn’t just good for those customers – it can be a pathway to success for a bank. MoneyRates.com looked at two examples of banks that have achieved much better growth in deposits than the industry average over the past few years to see how they’ve done it.
These two fast-growing banks are quite different from one another. Flagstar Bank is a regional bank with an extensive branch network in its markets of Michigan, Indiana, California, Wisconsin and Ohio. Ally Bank is a national bank offering online accounts only.
Despite their differences, these two both fit the profile of banks that succeed by serving their customers well. In talking with representatives from both banks, MoneyRates.com was able to formulate seven principles for following that pathway to success.
Offer good value
Banking is an extremely competitive business. There are more than 5,000 FDIC-insured institutions, and that’s just part of the competitive landscape.
As Gary Forhan, Retail Banking Deposit Product Manager for Flagstar Bank pointed out, while Flagstar primarily competes for business with other branch-based banks, they have to contend with much more than just their direct peers.
“Our competition comes in many forms,” he said “including local credit unions and national online banks. And now Apple, Amazon, Walmart and Costco are getting into financial services as well.”
One way Flagstar competes against such a diverse field is by continuing to offer free checking accounts at most of their branches. This makes them a little unusual among banks with extensive branch networks.
Research by MoneyRates shows that only about 30% of branch-based checking accounts have no monthly maintenance fee. In contrast, accounts without those fees are the norm among online checking accounts.
So, by offering the cost effectiveness of free checking along with the convenience of local branches, Flagstar Bank is offering customers a best-of-both-worlds value proposition that helps them thrive in a crowded field of competitors.
While Flagstar’s roots go back over 30 years, Ally is relatively young by banking standards, having recently celebrated its 10th anniversary. Even so, Ally has already crossed the $100 billion mark in retail deposits.
Some reasons for this rapid growth can be found by looking at Ally’s suite of deposit products. It offers free checking and reimburses customers for fees they incur on other banks’ ATMs. It also consistently offers some of the highest interest rates on CDs and savings accounts.
Millennials mean growth
Offering competitive products and services isn’t always enough to win banking business. As Forhan pointed out, “people are reluctant to take on the hassle factor of changing banks – especially when they’ve set up automated payments and direct deposits.”
One strategy for getting around this is to focus on younger customers. According to Dave Vasquez, an Ally executive responsible for customer care and experience, Millennials represent the majority of Ally’s new accounts.
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They may have less money than older bank customers, but they are also less likely to have entrenched banking relationships that they are reluctant to change.
As for Flagstar, while it may seem like a traditional, branch-based bank, it long ago moved with the times and started offering online accounts. That helps it compete with new-wave banks like Ally that grew up as online-only institutions.
In either case, the key is having up-to-date digital offerings to tap into a market of people who are reaching an age when they are actively looking to form banking relationships.
Find a profitable niche
While retail checking and savings accounts have the highest visibility to the average consumer, there are more specialized segments of the deposits business. Performing well for customers in these specialized niches can also be a pathway to success.
According to Ken Schellenberg, Vice President for Investor Relations at Flagstar Bank, one engine of growth has been handling the sub-servicing of loans for mortgage companies. To most people outside the banking industry, this may seem like a fairly obscure line of business – but the growth in volume has been very impressive.
The number of loans for which Flagstar provides this service has soared from about 220,000 at the end of 2016 to over 800,000 as of June 30, 2019. Besides generating fees directly, this business has also contributed to Flagstar’s deposits growth since it generates the escrow deposit accounts that come with mortgage servicing. Continue reading