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7 Ways Banks Can Succeed by Serving Their Customers Well

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customer-service-rep-girl-headsetBanking 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.

Customer Service - 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.

1. 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.

2. 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. 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.

3. 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.

4. It's not all about the numbers

Flagstar's mortgage sub-servicing business is a reminder that there is more to banking success than financial terms. While Flagstar has to offer competitive terms to get mortgage companies to outsource loan servicing functions to them, they also have to represent a desirable business partner to those companies.

As Schellenberg explained to MoneyRates, "Flagstar is well capitalized; so as a counter-party, we are a safer proposition for companies to entrust with this business." Also, "the breadth of our ancillary services make us a one-stop shop for our clients."

This year, Flagstar was named a Fannie Mae STAR Performer Award winner for the fourth consecutive year, based on their performance and practices as a mortgage sub-servicer. That's the kind of quality mortgage companies look for when choosing someone to service their loans.

5. Technology and humanity can work together

As banking becomes more and more digital, it might seem like the human element is less of a factor. However, the representatives of Ally and Flagstar that MoneyRates.com spoke with still put a high value on the personal side of banking.

Forhan points out that over 150 Flagstar locations offer a customer-focused personal banker. These personal bankers have an average of 15 years of experience.

Ally's Vasquez puts it this way: "We try to be human in a digital world." As an example of this, Ally's customer service is set up to give consumers a choice between interacting with the bank digitally or speaking with a human representative.

Vasquez also emphasized that those customer service representatives "are taught to be themselves, to have a dialog rather than just relying on talking points."

6. Don't give your customers a hard time

One way to attract and keep bank customers is to avoid making it difficult for them to do business with you.

For example, Forhan pointed out that Flagstar joined a network of 56,000 ATMs because they realize that, while their bank has a regional geographic footprint, their customers may travel nationally or internationally and need access to ATMs over a wider area.

For Ally, in addition to providing both digital and human service, they recognize that people often find the banking world confusing. To address this, their website is designed with a feature that allows users to hover their cursor over financial terms to get an explanation of those terms.

7. Look for a win-win

While many banks - both new school and traditional - offer online banking now, Ally designed itself from the start to be what Vasquez calls "a digital-first bank." As such, Ally is free of much of the outdated infrastructure with which some large banks now struggle.

While that's a cost savings for Ally, the best way to capitalize on that advantage is to share it with their customers. As Vasquez explained, "We're able to pass the savings of not having branches on to our customers." This shows up in customer-friendly product features like free checking and competitive interest rates on CDs, savings accounts and money market accounts.

While Flagstar does have a sizable branch network, it provides a win-win for customers by offering the choice of banking online or in person. Forhan went on to explain that, for many customers, "This isn't an either/or choice. They want the options of banking both in-person and online, depending on what they need to do."

Ally and Flagstar are two very different institutions, but they have both achieved above-average growth by applying these principles of succeeding by serving their customers well. As such, they each provide good examples of what customers should look for when choosing a bank.

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