How Consumers Choose a Bank: The Value/Features/Fee Tradeoff

There's no shortage of surveys out there that ask consumers which factors most influenced (or would influence) their choice of banks. Forrester recently published the results of the one they fielded, and here are the results of the one I fielded in late 2017.

The top two factors are similar in both survey. So what conclusion would you draw from this? Clearly, that you should lower your fees and build out more branch locations. Only problem is, you already offer free checking, and there's no way that you're going to build out 50 or even 5 branch locations in the near future.

While there are many problems with the surveys being published (see the Insight Vault post on How Consumers Choose a Bank: A Tale of Two Surveys), there is also a problem with how these surveys are analyzed. Simply looking at a list of the top factors mentioned misses important insights about consumers--namely, patterns in how they group the influencing factors.

How Consumers Choose a Bank: Three Segments

To better understanding the groupings of influencing factors, I ran a two-step cluster analysis using Schwartz's Bayesion Criterion and a log-likelihood distance measure (just trying to impress the non-statistically oriented reader). The result was three segments of consumers, which I labeled as Value (28% of all consumers), Features (42%), and Fees (30%).

The drivers of the segmentation are clear. Every one of the consumers slotted into the Value segment mentioned "best overall value for the money" as a factor influencing. Of the consumers in that group, 58% also cited "lowest monthly fees" and 37% listed "most convenient branch locations."

Consumers in the Features segment, however, tended to cite different factors influencing their decision. Forty-five percent said "best online and mobile banking tools" was a factor--in contrast to just 16% of the Value consumers. Overall, Feature-driven consumers were more likely to mention mobile tools, P2P payment tools, and PFM tools as important factors than consumers in the other segments.

Fee-based consumers are driven by lowest monthly fee--93% of the consumers in this segment mentioned that factor versus just 2% of the features-based consumers.

While many consumers cite convenient branch locations as a factor influencing their choice of banks--branch locations is not a primary driver nor is it a differentiating factor.

So why are the megabanks winning such a large percentage of the Millennials' business? Because a larger percentage of Millennials are features-driven, and the megabanks are seen as superior on the tools and technology front. It doesn't matter as much to Millennials that the megabanks don't offer free checking (note: the percentages in the following table are row %s--add across to sum to 100%).

Bottom line: Three conclusions to draw from this analysis:

  • Generational and gender segments are less important than bank selection segments. Marketing to "Millennials" or "Women" is the wrong strategy. No generation or gender is that homogeneous.
  • A financial institution's marketing strategy should be cluster-driven, not feature-driven. Hanging out the "Free Checking!" sign will win some consumers--but not all consumers, and maybe not the consumers you want to attract. A bank's or credit union's marketing approach should play to the combination of factors that influence consumers in each of the segments.
  • Consumer preferences will change over time. Will the Millennials of today still be feature-driven 10 years from now? I'm not betting on it. My bet is that they become more value-driven over time. Will the next generation of consumers (Gen Z) look like the Millennials? Maybe not. Every generation likes to establish their differentiation from the one(s) before it. If today's Millennials are feature-driven, Gen Z might rebel by being more Value-focused. Who knows. Let's see what happens.

Ron Shevlin
Director of Research
Cornerstone Advisors