The public perception of banks took a hit this year after a string of bank failures this spring forced many customers to take a hard look at their financial service providers.
The industry saw its biggest decline in sentiment since 2018, according to American Banker's annual reputation survey, with regional banks accounting for the bulk of this deterioration. Sven Klingemann, senior director at RepTrak, the reputation consulting group that conducted the survey, said the findings were a "powerful" showcase of how vulnerable banks' reputations are to periods of crisis.
"This represents a stark departure from some of the positive gains the industry had seen over the past three years, in which banks had actually gained a lot of goodwill among the public and its customers," Klingemann said, noting that the downturn erased the positive sentiment banks enjoyed for their handling of COVID-19 as both employers and service providers.
The responses, gathered between late April and early June, also demonstrate just how much more regional banks suffered as a result of the failures than larger and more specialized banks. "Regional bank customers are much more concerned about their institution's financial stability and five times as likely to want to switch to other banks as compared to customers of other bank types," he said, "driven by a desire for more financial stability, but also by a desire for lower fees [and] costs, better financial advice and higher reputation."
An eye on stability
The survey had consumers rate their own bank and others that they were highly familiar with on seven factors: products and services, innovation, workplace, conduct, citizenship, leadership and performance. It also tracked emotional sentiment toward banks and the actions consumers would take related to a given institution — including whether they would use its services, recommend it to someone else or work there. These factors were then indexed together to generate a cumulative score.
This year's survey, which launched a little more than a month after the failures of Silicon Valley Bank and Signature Bank, also gauged how the demise of the two banks impacted customers' views on their own banks.
More than half of regional bank customers surveyed reported having at least some concern about the stability of their bank as a result of the crisis, including 20% who reported "strong concern" about their bank. Those stability worries translated to customers docking their banks nearly 12 points on average. Overall, 15% of regional bank customers considered changing banks.
Of the 40 banks included in the survey, nearly all saw their overall reputation fall among noncustomers and
Irene Oh, chief financial officer of the $64 billion-asset bank, said the institution actually saw an inflow of deposits and opened thousands of accounts in the wake of Silicon Valley Bank's collapse, thanks to its strong presence in the Bay Area. Oh credit's East West's ability to not only maintain but grow its business through the period of distress to the hands-on approach the bank's executives took to address customer concerns.
"I, personally, had many, many conversations with clients who now suddenly wanted to talk about all the bank capital ratios and liquidity stress tests," she said. "The access to people in leadership positions that can provide confidence, that matters and that's one of the strengths of the regional banks such as East West."
Providence-based Citizens Bank also saw its reputation trend in a positive direction, bumping its score by four points over last year to achieve the tenth highest marks among customers. Like many firms, the $160 billion-asset bank saw its standing among noncustomers fall this year, with its score in that category tumbling six points to a ranking of 28.
But, Beth Johnson, vice chair and chief experience officer at Citizens, said the bank was able to perform well and open "many new accounts." She noted that Silicon Valley and Signature had distinct strategies — with the former focusing primarily on venture capital clients and the latter banking crypto clients — and their failures were "idiosyncratic." They do not represent the full gamut of regional bank strategies, most of which are diversified and prudent.
"We take a thoughtful approach to how we manage our balance sheet and it has helped us navigate the rising rate environment well and continue to deliver for our customers," Johnson said. "While we had to play strong defense in the short-term, we continue to simultaneously prioritize smart investments to drive future growth."
Customers of the five largest banks included in the survey — Bank of America, Chase, Citibank, HSBC and Wells Fargo — remained more confident in their institutions, with 55% reporting no concerns and just 9% indicating strong concerns. Similarly, noncustomers were most confident in large banks, with 42% reporting no concern about their stability, compared to 40% for nontraditional banks and 32% for regionals.
The reputational score fell year over year for large banks, but not as steeply as the decline for regional banks. As a result, the gap between the two strata of banks — which has always favored regionals — was 2.5 points, the smallest since RepTrak began tracking the space in 2017.
Klingemann said this shift in sentiment aligns with a broadly held view that global systemically important banks are a safe harbor for deposits in excess of the Federal Deposit Insurance Corp.'s $250,000 insurance cap. But, he noted, this is also a continuation of a years-long trend of large banks making up ground on the regional counterparts. The gap between large and regional banks was 8.5 points in 2017 and has fallen annually.
"Historically we have seen large institutions get more credit as good corporate citizens, an area in which they were perceived to have the largest deficits versus regional and non-traditional banks," he said.
Not all large banks saw their standing improve. Wells Fargo maintained its position at the bottom of the noncustomer rankings once again, after another year of hefty regulatory citations and fines. In the customer survey, it finished with the second lowest score, ahead of only fellow San Francisco-based bank First Republic, which failed in the middle of the survey period.
The winning formula
Despite the digital banking implications in the first two failures of this year — in which a crush of mobile withdrawal requests drained the banks' liquidity in a matter of hours — online-native banks were the big reputational winners in 2023.
So-called non-traditional banks, including USAA Bank, Discover Bank, Ally Bank, Chime and Synchrony Bank, saw the highest level of customer confidence, with 60% reporting no concern and just 6% citing strong concern. As a group, they also increased their cumulative standing with their customers.
San Antonio, Texas-based USAA maintained its position as the top rated bank among both customers and noncustomers for the seventh year running. Among customers, it increased its industry-leading reputation score by 2.2 points, while only losing a tenth of a point among noncustomers.
Paul Vincent, president of USAA Federal Savings Bank, attributes the firm's continued success to its focus on a key customer base — military members and their families — and creating products and services that appeal to their distinct needs.
Vincent said it is of little surprise that other banks that fared well in an overall down year had a similar retail centric approach.
"When you look at the banks that are doing well in gaining share, it really does get back to an unwavering customer focus, or in our case member focus, and what banks are doing around user-centered design for their products and services," he said. "For us, our members in the military and their families are extremely mobile, whether they are stationed around the U.S. or they're called up to deploy, that digital-first capability is something we've continued to build on."
Indeed, products and services played an outsize role in shaping public opinions about banks in this year's survey, with 19.7% of customers ranking that category as the most important for assessing their bank this year, up 1.8 percentage points from 2022.
Klingemann notes that this heightened focus on products and services is part of a broader trend of "pocketbook issues" taking higher priority for consumers. Across the board, customers are trying to make sure they get the most bang for their buck from their banking relationships, a trend he attributes to persistent inflationary pressures weighing on household balance sheets.
"As consumers are looking to get the best returns on their banking business relationships, all institutions need to make a case for why customers should stay with them or why they are the best choice for prospective clients," he said. "Value, in that context, certainly pertains to fee structures, interest rates and investment returns, but also to the quality of services received, the willingness of banks to offer an array of products and services adapted to changing needs or to work with clients who are facing financial challenges."
Vincent said USAA aims to provide this kind of value in several ways, including making funds from direct-deposit military paychecks available two days earlier, offering 0% balance transfer fees, 5% interest rates on certified deposits and low-cost, unsecured loans. He also noted that the bank does not charge nonsufficient funds, or NSF, fees.
"We're constantly being agile, based on our members' needs, to get what is new, current and top of mind out there and continue helping them adapt to all of life's changes while achieving financial security," he said.
Roger Hochschild, then-president and CEO of Discover, said in July providing relative value to consumers was a founding principle for the bank and a driving force behind its decisions to forego physical branches and establish its own payments network. The Riverwoods, Illinois-based firm's ability to offer competitive rates and services contributed to its strong performance among customers and noncustomers alike, he said.
Hochschild
Discover was one of the few banks to see its reputation climb from last year among both customers and noncustomers. It ranked fourth and eighth, respectively in the two categories.
"The digital/direct model does give you, especially if you're at scale and thrifty like us, a lower cost base that can translate into a superior value proposition for customers," Hochschild said. That could include the bank paying customers a better rate for a savings account than an institution that must support a branch network.
"Also, because we have a proprietary network, we are able to afford cash back on debit transactions. That will be a big differentiator and further build trust with customers," he added.
The second most important factor for respondents was conduct, ensuring that banks treat their customers, employees and broader communities with "fairness and transparency," Klingemann said. This is an area in which banks that do offer the same value proposition as others were able to make up ground, but it was also a potential downside risk, as a poor reputation on this front could severely impact a bank's standing with noncustomers.
Klingemann said there are several ways in which banks can achieve a "competitive advantage" through good conduct and citizenship, including "showcasing active community involvement, being environmentally responsible or highlighting their contributions as an employer of choice."
Citizens, which has expanded its presence in the New York City area by purchasing 80 branches from HSBC Bank and adding another 150 branches by purchasing Investors Bancorp, has made an effort to engage with its new communities, Johnson said.
"Since our arrival last year, we've begun our work with close to 15 local organizations and multiple small businesses to launch tailored programs in our neighborhoods, from Chinatown and Ocean Bay to the East Village and Queens," Johnson said. "All of these efforts show that Citizens is here to listen, to take in the dynamic energy that makes the city tick and put that knowledge to good use."
Doing what's right
The survey also explored how important other issues were to consumers, including their banks' environmental, social and governance, or ESG, practices. Overall, it appears ESG is valued most by regional bank customers, with 49% of respondents calling it "very important," compared to 45% of non-traditional bank customers and 39% of large bank customers.
Close to 60% of respondents favored ESG-focused investment strategies provided they generated the same or better returns. Few felt ESG should be pursued in exchange for lower returns, with just 14% favoring that approach, and even fewer felt ESG should never be considered, at just 10%. A significant number of respondents, 20%, were undecided on the matter.
Respondents were also asked whether or not it was important for their banks to address issues related to diversity, equity and inclusion. The survey found a direct correlation between a customer's age and their likelihood of valuing their bank's DE&I efforts, with 63% of the youngest cohort, those who were 18 to 24 years old, stating its importance, compared to just 39% of those 65 and older.
Overall, just half of respondents said they cared about their bank's DE&I strategy, a decrease of 5 percentage points from last year. The only segment polled that showed a higher value for such considerations were Asian Americans and Pacific Islanders, which 55% said the topic was relevant, an uptick of 7 percentage points.
Oh said she was not sure how closely these findings track with her own customers, but she said "Chinese affinity" is one of the leading reasons why East West's retail and small-business customers choose to do business with the bank. The bank was founded in 1973 to serve recent immigrants who otherwise struggled to access financial services due to language barriers and discrimination. In the decades since, it has adapted to the evolving needs of those communities, including developing services to help customers transmit funds to families overseas. Oh said many Asian Americans have been acutely aware of discrimination and other mistreatment in recent years in light of a rise in violent attacks against their communities since 2020.
"For Asian Americans, especially after the pandemic and some of what came out after that, there's a renewed focus around DE&I," Oh said.
The survey also delved into public sentiment on the government's handling of the bank crisis and what steps should be taken moving forward. The most popular next step, with 55% of respondents favoring it, was to regulate investment risk within banks more heavily, while 44% said banks should be forced to hold more capital. More than a third of respondents would like to see all deposits covered by the FDIC, including those above the $250,000 cap, and 17% endorse the government providing more liquidity to the banking system, if needed.
Only 11% said the government should do nothing at all, an outcome that caught Klingemann by surprise.
"It is pretty notable that, in times of unprecedented political polarization, the overwhelming majority of respondents wants some form of governmental regulation [or] intervention, no matter their sociodemographic status or political affiliation," he said.
