U.S. COMMUNITY BANK RESULTS

U.S. COMMUNITY BANKS | 1

U.S. COMMUNITY BANK RESULTSCreating a New Level of Bank Service for Community Bank Customers


The bar continues to rise for digital access and payments, now table stakes in the battle to attract and retain younger consumers as well as growing in importance among older consumers.

Community banks are far behind other banking providers in leveraging credit cards to improve perceptions and promote loyalty with consumers, thus missing out on customer analytics data as well as revenue.

Opportunities abound for community banks to deepen relationships with senior millennials and Gen Xers by closely tying loan and investment offers to consumers’ anticipated life events.

Community banks cannot win millennials away from bigger banks without delivering on their desires for mobile access, easily accessible information and tools online, and efficient service (not necessarily in person).

CREATING A NEW LEVEL OF SERVICE FOR U.S. COMMUNITY BANK CUSTOMERSWelcome to the third annual FIS™ Performance Against Customer Expectations (PACE) Index™ report, which details how the expectations of today’s community bank customers are shifting and analyzes how institutions are performing relative to those expectations.

Prior PACE reports revealed what were, at the time, emerging shifts in customer priorities and hinted at what are now clear consumer trends, such as the popularity of digital payments. Similarly, the 2017 edition of PACE contains useful observations about the current state of community bank performance as well as directional insight into what the months and years ahead may hold.

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KEY INSIGHTS

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For details about our methodology, visit the PACE website at www.fisglobal.com/closethegaps.

SHOWING WHAT MATTERS IN CONSUMER BANKINGPACE measures how well the expectations of U.S. community bank consumers are met based on the performance of their primary banking provider.

We asked more than 500 community bank customers to rank their primary banking providers according to 18 key performance indicators (KPIs) and then ranked their primary provider’s performance in these areas. The results are compiled into a score that reveals to participating institutions how they are performing relative to their peers. We then cluster attributes into three groups according to how strongly they relate to one another.

Fairnessno hidden charges/fees

Safetytrusted to protect my money

Simplicityeasy to understand and

use products and servicesTransparency

easy to understand pricing/termsSecurity

protect personal identityReliability

follows through on promises

Omnichannelconsistent information at points of contact

Digital Paymentsdigital transaction optionsLeading-Edge Products

more innovative products/services than other banks

Connectedanytime anywhere access through online/mobile

Immediatesystems that respond fast enough for me

Recognitionrewards me for my business

Advicetrusted advice to help me manage my money

Aspirationshelps me achieve financial goals

important to my lifeCustomized

tailors products to my needsControl

helps me gain control of my financesIn-Person Service

face-to-face personalized serviceAnticipates

anticipates my future needs

RUN CONNECT GROW


IN GENERAL, CONSUMERS ARE HAPPIER WITH COMMUNITY BANKSOverall, U.S.-based community banks saw their PACE score rise 4 points over 2016, to 96, indicating that they are making strong progress in meeting consumer expectations. Compared to other bank categories, community banks are outperforming the top 50 global banks and regional banks in meeting their customers’ expectations but trail credit unions by 3 points.

Top 50 Global Banks

85

Regional Banks

87

Community Banks

96

Credit Unions

99

PACE SCORES FOR ALL U.S. BANK TYPES


STILL WEAK IN CORE FUNCTIONSHowever, digging into the underlying PACE scores, community banks exhibit the same weak performance as other banks in meeting consumer expectations for certain KPIs, though not by as large a magnitude.

In terms of how they RUN, community banks still fell short of expectations across the board, most notably in terms of Fairness. Only in Simplicity did they manage to meet consumer expectations.

When measuring how banks CONNECT with customers, community banks outperformed expectations in most categories, likely due to recent investments in digital banking. Their dramatic underperformance in Recognition suggests work remains in acknowledging and rewarding customer loyalty.

Community banks also fell short in most areas where they can GROW their businesses, not meeting customer expectations for KPIs like Aspirations, Control and Advice. Unlike the broader U.S. consumer PACE score, consumers ranked In-person Service as their top priority for community banks and the banks handily outperformed here.

SAFETY

SECURITY

FAIRNESS

RELIABILITY

SIMPLICITY

-3959289656463

-5-15

RUN

-6

0TRANSPARENCY

KPI ExpectationBelow

ExpectationAboveExpectation

-6

CO

NN

ECT

OMNICHANNEL

CONNECTED

RECOGNITION

DIGITAL PAYMENTS

IMMEDIATE

675837342519

+11

LEADING-EDGE PRODUCTS

+10



+5

-20

+15

+1

GRO

W

IN-PERSON SERVICE

ASPIRATIONS

CONTROL

ADVICE

CUSTOMIZED

474443362913ANTICIPATES

-12

-11



+26

-10

-9

-1


NOT SERVING THE NEXT GENERATION OF BANK CUSTOMERS These data points show that community banks are making progress in offering digital solutions but are still slow to adapt to consumers’ changing needs for access and financial products and services that align with events in their lives. However, these supposed digital gains are put into very real perspective when looking at the makeup of community banks’ customers: they’re overwhelmingly older and far less active in their banking practices than customers of bigger banks.

57% of community banks’ customers are over age 51.

In fact, 57 percent of the customers of community banks are above the age of 51. The demographics where they have the most potential for growth and to sell additional services — senior millennials and Gen Xers, those with similar high incomes and banking habits — only account for 37 percent of their customer base currently. Without focused effort in improving services and investment in the desired technologies, community banks as a category may face a dramatic shakeout.

Top 50 Global

5%19%

23%

23%

30%

Regional Bank

6%12%

22%

29%

31%

Credit Union

5% 11%

20%

23%

41%

Community Bank

7% 6%12%

25%50%

GENERATIONAL COMPOSITIONS OF TYPES OF PRIMARY BANKING PROVIDERS

Silent Generation (71+)Young Millenials (18 – 25) Senior Millenials (26 – 36) Gen Xers (37 – 51) Boomers (52 – 70)

On average, 72% of customer interactions

with a community bank are digital.


DIGITAL IS NOT OPTIONAL Right now, 72 percent of all consumer interactions with a community bank are done digitally, via online or mobile banking options. This cuts across all consumer segments, from millennial to baby boomer, and makes it clear that digital banking is the foundation of the modern customer relationship. Similarly, mobile banking is quickly taking on a greater proportion of digital banking, a trend we can expect to accelerate in the coming years.

AVERAGE NUMBER OF CONTACTS IN THE PAST 30 DAYS

5.14.8

3.0

1.8

Mobile phone or tablet

Young Millenials (18 – 25) Senior Millenials (26 – 36) Gen Xers (37 – 51) Baby Boomers (52 – 70)

3.7

5.9

4.2

7.3

Online (banking, chat, secure email)

3.7 3.8

2.72.9

Branch and ATM


LIFT OFF FOR MOBILE TRANSACTIONS Growth in mobile transactions and payments year over year shows mobile adoption is accelerating, but coming from a slower start at community banks.

Mobile adoption is being driven by millennials, especially young millennials, who are far more likely to use a community bank’s mobile app and make purchases with it.

However, millennials are more than twice as likely to use an outside app for person-to-person (P2P) payments rather than their primary banking provider’s app. Community banks are simply not competing well (or at all) in this arena, and their consumers are adopting alternatives, like Venmo.

2016

PAST 30 DAY MOBILE TRANSACTIONS

Paid an individual person by using your financial institution’s mobile app<1%3%

Transferred funds between bank accounts

12%17%

Paid a bill from your bank account

31%32%

Deposited a check remotely into your account by taking a picture of it with a mobile device3%9%

2%5%

Made a purchase by using a mobile app that you can use at many different retailers

Paid an individual person by using a payment service’s mobile app(not your financial institution’s)<1%5%

Paid a bill from a prepaid card account

2%5%

2017

WHERE BANKING MEETS LIFEAs prior PACE data points indicate, there is great opportunity for banks of all sizes to improve their service

relationships with customers. This is especially true when it comes to helping customers find, evaluate and select financing and investment products related to key life events such as buying a house.

The primary banking provider is often the first choice of consumers when they want financial assistance.

My primary financial institution

A financial institution other than my primary financial institution

A friend or family member

Another source

I will not turn to an outside source for help

I don’t know

Buying a house32% 17% 25% 19%8%

Investing for your future

6%23% 33% 9% 18%11%

Buying a car2%25% 24% 16% 14%18%

Renovating/updating a house

19% 11% 14% 17%38%

School tuition

21% 24% 19% 10%26%

Planning for Retirement

11%19% 26% 5% 23%16%



LOSING CUSTOMERS BEFORE CONTACT IS MADEHowever, first-choice intentions are rarely realized, as competitors step in to capture those customers — often before they have contacted their primary bank. This can be seen in the low percentage of key accounts held by the consumers’ primary bank.

Gen Xers, who earn the most with an average $69,900 annual income, are the most notable opportunity for community banks, given how few card and investment accounts they have with their primary bank.

The PACE study found that supporting Aspirations is where banks have the best opportunity to GROW — and that means being there precisely when they’re needed. Community banks need to better coordinate outreach and marketing with the likelihood of key events in customers’ lives. The key to driving such touch points is in-depth, targeted analysis of the demographic, transactional and socioeconomic data within banks’ own systems.

Automobile loan45%58%40%36%

Young Millennials(18 – 25)

Gen Xers (37 – 51)

Baby Boomers (52 – 70)

Senior Millennials(26 – 36)

PERCENTAGE OF ACCOUNTS HELD BY PRIMARY BANKING PROVIDER

BEING THERE IN THE MOMENT OF NEED

Home mortgage56%50%40%40%

Investment accounts50%42%21%38%

Credit card account59%42%29%36%

Paying tuition31%9%14%1%

Young Millennials (18 – 25)

Gen Xers (37 – 51)

Baby Boomers (52 – 70)

Senior Millennials (26 – 36)

NEAR-TERM LIFE EVENTS PLANNED (WITHIN 24 – 36 MONTHS)

Investing for your future45%30%21%11%

Buying a house31%21%11%4%

Buying a car51%33%21%19%

Planning for retirement18%16%27%23%

Renovating/updating a house15%23%11%11%

Starting a business3%0%2%0%

Paying for a wedding/engagement ring13%14%1%1%


TOP OF PHONEIn today’s digital world, “top of phone” is fast becoming “top of mind” for U.S. consumers, especially millennials but ever more so for Gen Xers and baby boomers. This can be seen in shifting consumer viewpoints around the importance of having digital payment options.

Digital payments increased in importance for all consumers but especially for young millennials.

DIGITAL PAYMENTS – A MUST TO ATTRACT NEW CUSTOMERSWhen looking at usage rates of the primary bank’s mobile app for transactions and payments, the generational divide is again evident. Currently, community bank consumers are less likely to make mobile transactions or payments, likely due to the population’s older skew.

Providing up-to-date digital payments options, including mobile wallets and P2P options is an absolute must for winning over younger consumers, especially young millennials, and the importance of these options are quickly rising with older consumers, as well. Not offering these options is an Achilles’ heel for community banks.

2017

2016

IMPORTANCE OF DIGITAL PAYMENT OPTIONS

Large bank customers who make mobile transactions or payments

74%

Community bank customers who make mobile transactions or payments

68%

Young Millennials

Senior Millennials Gen Xers Baby

Boomers

46

3228

21

37

29

3633


TOP OFWALLET CRISIS?Community banks are losing their consumers’ credit card business to competitors. Worse, half of community bank consumers don’t have credit cards at all.

The magnitude of the problem can be seen in that only 17 percent of community bank customers hold a credit card from the primary bank — less than half of the U.S. average of 38 percent for all banking providers.

CAN CREDIT CARD LOYALTY PROGRAMS IMPROVE SATISFACTION? Not being rewarded for their business with their primary banking provider is a common complaint among consumers. But, consumers who use their primary banking provider’s card exclusively have a much less negative view of rewards they receive from their banking providers.

Credit cards also represent a vehicle for helping consumers achieve their financial goals. Community banks still fall short of consumers’ expectations, but consumers who only use their primary banking provider’s credit card are more likely to rate their community bank favorably in helping them achieve their aspirations and gain control over their finances.

Don’t have credit cards

Credit cards with both the primary and other financial institutions

Credit cards with another financial institution only

Credit card with their primary financial institution only8%

52%

9%

31%

ONLY 17% OF COMMUNITY BANK CUSTOMERS HOLD A CREDIT CARD FROM THEIR PRIMARY BANK

REWARDS ME FOR MY BUSINESS

-13-27

-4-13

-2-10

HELPS ME ACHIEVE THE FINANCIAL GOALS THAT ARE IMPORTANT TO MY LIFE

HELPS ME GAIN CONTROL OVER MY FINANCES

Credit cards with their primary financial institutions only

Credit cards with another financial institution only

DIFFERENCES IN SCORES

In the U.S., overall credit card penetration is 42% vs. 17% for community banks.

Even though they are generally well-liked by their customers, community banks face a myriad of headwinds and challenges — some of which are the result of dramatic shifts in consumer tastes and some which are due to organizational inertia. Most critical is that community banks must reach out to, win over and retain more high-income, highly active millennial and Generation X customers. Doing this will require meeting consumers’ high expectations for anywhere, anytime access to banking services, including digital payments, as well as taking on a more advisory role in the customer relationship. Not doing this, or not doing it quickly and effectively, may threaten community banks as a category.


IN CONCLUSION


ADDITIONALU.S. SURVEYSCONSUMER BANKING SURVEY

• Surveyed 1,000 banked consumers. Respondents qualified based on having a banking relationship and household financial decision- making authority

• Surveyed 504 community bank customers

• Expanded segmentation to show differences between younger and older millennials

SMALL AND MIDSIZED BUSINESS BANKING SURVEY (NEW)

• Surveyed nearly 500 U.S. businesses with minimum of five employees and revenues up to $500 million

• 50 percent of companies had 50 to 500 or more employees

• Two-thirds of companies in business for more than 10 years

• More than 50 percent of companies serve both B2B and B2C markets

• Companies spread across U.S. geographic regions

• One-third of companies have more than one location


Contact UsFor more information about the FIS PACE Index™, please contact us.

Stephen KaneSenior Vice PresidentFIS Global Banking and [email protected]

Kim SniderSenior Vice PresidentFIS Corporate [email protected]

PACE 2017

About FIS

FIS™ is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting, and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 57,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500® Index. For more information about FIS, visit www.fisglobal.com. Follow us on Facebook (facebook.com/FIStoday) and Twitter (@FISGlobal).

©2017 FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties’ marks are the property of their respective owners.

U.S. COMMUNITY BANK RESULTS

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