Let's conduct a quick test. I'll say a word, and you tell me the first emotion that comes to mind.
The word is "bank." Did you shudder, cringe, or otherwise make a face that would be construed as being anything other than happy? Chances are, you're probably not alone.
A recently released report from American Express showed that 57% of respondents keep their savings at a local bank. This was actually up marginally from the 55% reported in 2014. But, to look at this from another angle, it means 43% of respondents don't trust their bank to hold their money. And who could blame them?
Why we don't trust banks
Since the housing bubble and Great Recession, there have been more lawsuits filed against U.S. banks than I can count. Banks have been primarily targeted for their mortgage lending practices prior to, and during the early stages of, the housing bubble collapse, leading to billions upon billions of dollars collected by the Justice Department.
Last year, an article by The Huffington Post pinned total bank settlements with the Justice Department at $128 billion since 2009, with Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) bearing the brunt of those charges with $61.2 billion and $31.5 billion in settlement charges, respectively.
To add, lower interest rates have left banks scrambling for ways to boost their bottom lines. In 2011, Bank of America attempted to start a banking revolution by charging its customers $5 per month for using their debit card. Unfortunately, all it started was an exodus of customers to different banks and local credit unions. Bank of America and its peers abandoned the idea of charging a monthly fee for debit card use almost as quickly as it was proposed.
Long story short, consumers aren't a big fan of banks because they question whether banks ultimately have their best interests in mind.
The dynamics of selecting a bank account are changing
What's even more interesting, according to a February survey conducted by SNL Financial, is that the dynamics of checking account switching are beginning to shift, with certain aspects of banking beginning to take precedence over others.
According to SNL Financials' February survey of nearly 5,000 smartphone users, 11% admitted to changing their primary checking account to a new bank in the previous 12-month period. One way of looking at this is that 89% of consumers are demonstrating some degree of loyalty to their bank. This was especially apparent for seniors aged 67 and up, and baby boomers in the age range of 48-66, who switched at a rate of just 4% and 6%, respectively.
However, the rate of change was alarmingly high for tech-savvy young adults aged 18-25 and 26-35, who switched primary bank accounts at a rate of 19% and 16%, respectively, over the prior 12-month period.
SNL offered consumers 18 different choices as to why they changed their primary account, allowing those respondents to select more than one reason. These included factors such as better hours, bank closed, getting divorced or got married, and even personal issues, to name a few. The results were as follows:
As you can see above, lower fees were a strong factor in changing bank accounts. Consumers are resistant to high-margin bank fees, and they'll typically do what they can to avoid them. Poor customer service was another sticking point. This also shouldn't be a huge shock, as consumers tend to avoid companies they don't trust or have no emotional attachment toward.
The real shock, though, was the rising importance of mobile applications, which were responsible for swaying more than one in four primary account switchers to jump ship. Additionally, people making $75,000 or more per year were 30% more likely to switch primary banks than those making less than $75,000 per year. In other words, the new battleground for banking customers -- and more importantly higher-margin banking customers -- could come down to mobile app quality.
Banking on mobile
Witnessing young adults and millennials jumping ship for a new bank isn't a big surprise as the tech-savvy generation genuinely values its time. Anything that can keep the consumer out of the bank -- such as point-and-click deposits via a mobile app -- is likely to be viewed positively by younger banking customers.
Recently, MagnifyMoney.com compiled user ratings from iOS and Android banking apps for more than 100 banks and ranked those banks based on consumer satisfaction. The scale ranged from one for a poor score to five for a top score.
Among big banks, Capital One Financial (NYSE:COF), which is primarily known for its credit cards, took the top honor, with an average score of 4.1. Capital One's mobile banking app is particularly liked because of its ease of login and account safety. Instead of making users remember some awful alpha-numeric password with capital letters and special characters (something that truly irritates me), Capital One's SureSwipe allows consumers to create their own login "pattern" based on dots on their screen, and replicate that pattern in order to log back in at a later period. For any Android OS users are out there, this is very similar to the Swype keyboard you can employ rather than pecking at individual letters. SureSwipe has made it convenient and safe for Capital One consumers to access their accounts.
On the flipside, Citigroup's (NYSE:C) Citibank was the worst mobile app performer of the big banks, with a score of 3.1. Should it really come as a surprise that Citi has also been the worst big bank performer since the Great Recession as well? Respondents in the survey noted that Citibank's mobile app allowed for only $1,000 to be deposited by mobile app per day (a very low limit relative to other banks), and that the app regularly crashed while making a mobile deposit. Citi is hoping to change this poor ranking by turning to outside developers to help it develop a superior mobile banking solution. Optimally, it's a work in progress at the moment.
An honorable mention also goes to online direct bank, Bank of the Internet (NYSE:AX) which had the third-highest overall customer satisfaction score of 4.3, behind only First Internet Bank (NASDAQ: INBK) at 4.4 and Simple at 4.6. Bank of the Internet is capitalizing on the convenience factor of banking online and attracting a good number of millennials, resulting in a projected 43% revenue growth rate in 2015 and an estimated 25% revenue growth rate in 2016.
Can you point-and-click these banks to big profits?
Having a functional and well-liked mobile app is certainly going to take on increased importance as times passes. Conversely, a mobile banking app that doesn't function as well relative to its peers could hurt that bank years down the road. As millennials begin to accumulate wealth and look toward higher-margin financial services such as a mortgage or investment management, they may bypass banks that haven't invested in mobile conveniences.
Should the strength of a mobile app be the only indicator you use in deciding whether or not to buy a bank stock? Absolutely not! But, reviewing consumer opinions on the ease, reliability, and safety of a banks' mobile app is often a good starting point that'll help you determine how satisfied consumers are with their bank. Banks that boast higher scores are probably going to have an easier time hanging onto their client base, and they may not have to spend as much on marketing to keep them.
If you take anything away from this data, it's that Capital One Financial and Bank of the Internet just might be two names you'll want to add to your watchlist and dig more deeply into, while Citigroup might be a bank you consider passing on for now.