According to a new J.D. Power study, Bank of America (BAC -1.07%)has significantly increased its customers' satisfaction with its mortgage origination process.
Bank of America has said repeatedly that it is focusing on creating an excellent customer experience, and has actually given up some potential revenue in order to achieve this. Now, it appears to be working.
Here is why this is so significant, and what it could mean for investors.
Impressive results
According to J.D. Power's study, Bank of America achieved a better customer satisfaction rating than all but one other major U.S. primary mortgage originator (the exception being Quicken Loans). This means Bank of America beat competitors including Chase, U.S. Bank, and even Wells Fargo, the No. 1 mortgage originator by volume in the country.
The study took six different factors into account: loan offerings, application/approval process, interaction, closing, onboarding, and problem resolution. Given its high score, it is reasonable to say Bank of America likely performed well in most, if not all, of these categories.
A customer-oriented bank
Over the past few years, Bank of America has put a renewed emphasis on creating a much more customer-friendly banking experience.
For example, the company voluntarily eliminated two of its most unpopular revenue streams: debit card overdraft fees (discontinued in 2010) and "add-on" products like identity theft protection (all phased out by August 2012). According to one executive, these moves cost Bank of America $6 billion in annual revenue.
What it could mean to investors
About half of U.S. households have at least one banking product with Bank of America, meaning its ability to attract new customers is pretty limited. So the company has (smartly) decided to keep the customers it already has as happy as possible.
If a big bank focusing on customer satisfaction sounds familiar, it might be because that has been a cornerstone of rival Wells Fargo's game plan for some time now. And it has been quite successful; the average Wells Fargo customer has more than six products with the bank, the highest number of the big banks.
Seems to be working so far
In addition to the excellent mortgage origination satisfaction results, other signs point toward happier customers, and better cross-selling results, at BofA.
For example, Bank of America issued 1.2 million new credit cards in the most recent quarter, a 15% year-over-year increase, and 64% of these were to existing Bank of America customers.
The brokerage division saw a 21% year-over-year increase in client assets, including positive inflows of money. More money is flowing into Bank of America's brokerage division, which is significant because brokerage customers tend to be some of the best customers a bank can have.
To put this in perspective, I mentioned that Wells Fargo's average customer has about six products with the bank. Well, its brokerage customers have an average of 10.
Bank of America has a real growth opportunity in striving to become its customers' only bank. The average American household has a total of 16 banking products, and keeping customers highly satisfied could earn BofA a big piece of this market over the long run.
