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What Do Consumers and Small Businesses Think About Banking?

April 4, 2019
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Every year, Raddon conducts nationwide research of consumers and small businesses to understand their motivations, preferences and behaviors in banking. We include our discoveries in four comprehensive reports: Deposit Insights, Lending Insights, Payments and Channels Insights and Small Business Insights. Subscribers to the Raddon Research Insights program receive these four studies as well as an invitation to a webinar giving highlights and strategic recommendations.

Following are some discoveries from the 2018 studies released early this year.

Deposit Insights

Now that deposits are suddenly a critical focus for many institutions, our Deposit Insights study, Ready to Put Money to Work, identifies the key trends and emerging consumer sentiments that will inform a coherent deposit strategy. A notable trend is the growth in aggregate balances for certificates of deposit since 2016 after eight years of sustained decline. It shows the reemergence of this product as higher rates set in and industry competition for funds intensifies. At the same time, however, total balances in liquid deposit accounts are at all-time highs, meaning substantial dollars that are easily moved remain in play.

Given these dynamics, this report looks at household rate sensitivity; that is, which households are prone to move funds, what level of yield would entice them to move funds and what is the potential destination for these funds. We also explore the appeal of various features of certificates of deposit (CDs) and ways institutions might “rebrand” them for emerging depositors, who may have little familiarity with CDs (Figure 1). Millennials and Gen X show an interest in certificates of deposit when they are described as fixed-term, higher-interest “goal-savings” products. Finally, we offer nearly 30 deposit tactics that institutions can deploy to retain funds and/or achieve their growth objectives in a cost-effective manner.

Lending Insights

In our Lending Insights study, Headwinds on the Horizon?, we uncover some interesting findings related to consumers’ borrowing behavior in their given life stage. In the 2017 study, we asked respondents if they intend to open a loan in the next 12 months, and 12 months later, we asked whether they actually did.

Millennials continue to express a growing desire to make the major purchases – cars and homes – that necessitate loan usage. However, the challenges they face around student loan debt, housing affordability and rising interest rates appear to be acting as headwinds for their loan-buying activity.

Conversely, older consumers appear to be borrowing more readily than they anticipated – a sign that they may be capitalizing on still-advantageous interest rates as they approach or experience an uncertain retirement.

From a product perspective, the credit card arena looks increasingly competitive. The opportunity here is good as consumers show great receptivity to open new cards, but their receptivity also presents a challenge. The broader outlook for real estate lending is generally positive, thanks in large part to demography, while auto lending is less so, given the impact of new technologies on personal vehicle ownership. Ultimately, in the current environment, loan opportunities remain stronger than during post-crisis lows. However, institutions need to be more effective at personalized, timely targeting to seize individual opportunities as consumers navigate the extant headwinds.

Payments and Channels Insights

Our third study on Payments and Channels Insights, The Continuing March Toward Mobile, demonstrates how mobile banking is disrupting delivery, reshaping the customer experience and elevating consumers’ expectations. Consider that, for the first time since its inception, mobile banking appears to be suppressing online banking adoption, presumably as a growing segment of consumers embraces a mobile-only experience, at least for digital interactions. We continue to see consumers – even millennials and mobile bankers – value branch accessibility for checking relationships and for sales- and service-oriented activities.

Still, this “high-tech, high-touch” paradigm leads to significant demographic differences in the checking account features that consumers value. For instance, although branches are important to the overwhelming majority of users of checking accounts, younger, high-income consumers also place great importance on mobile banking (Table 1), whereas older, lower-income households place greater value on benefits like free checks (Table 2). This study explores these demographic differences in depth because they are essential considerations for financial institutions examining their checking product menu and the effectiveness with which they serve a behaviorally and attitudinally diverse customer base.

Furthermore, we gauge the threat presented by so-called disruptors in the payments space and discuss possible responses by the industry. E-commerce giants such as Amazon and PayPal are influencing consumers’ banking expectations as much as, if not more than, any innovation in banking apps or branch design. The industry needs to both keep pace with and differentiate itself from these emerging competitors.

Small Business Insights

In our Small Business Insights study, Looking for Easier Banking, we see continued optimism among small businesses, though this optimism appears to be waning. Small businesses’ anticipated loan demand fell significantly from 2017 (48 percent) to 2018 (41 percent), a sign that these firms may be growing cautious because of economic concerns. Indeed, as shown in Figure 3, almost half (47 percent) of small businesses are hesitant to take on debt right now because of the economy. But factors related to the difficulty of the loan process resonate just as strongly in the minds of small business owners. Certainly, onerous processes won’t prevent a small business from seeking a loan when it is necessary. However, lenders should view process improvement as a means to differentiate on both the customer experience and price, presuming that more efficient processes allow the lender to extend more favorable terms and conditions to the prospective borrower.

And now, as the industry increases its focus on deposits, the difficulties with the loan process cited by small business borrowers make us wonder if a similar phenomenon exists on the deposit side. Given that small businesses can be a key source of funds, institutions seeking to grow deposits should evaluate their account-opening processes and their commercial online and mobile banking suite.

Access to Raddon Research

To learn more about these latest financial services trends and understand the key strategic implications for financial institutions, click any of the links above or visit our website. There you will see all our research studies available for purchase. Studies on product design, Gen Z and employee engagement are just a few of the 2019 offerings to come from the Raddon Research Insights program during the year.