Only 3 in 10 U.S. consumers are financially healthy right now, and 45 percent are financially vulnerable, according to a new J.D. Power study. iStock illustration
Consumers face increasing financial stress and a decline in overall financial health, and Massachusetts financial institutions are developing new products and rethinking their operations to adapt.
According to a recent J.D. Power survey, the number of U.S. consumers classified as financially healthy fell to 30 percent, a 13-month low.
“This is a statistic that really should concern everyone,” Workers Credit Union Chief Revenue Officer Robert Lockett said. “Quite honestly, it is something that we’ve been looking at really going back eight, nine years. The consumer has been showing stress for a long period of time.”
Some institutions have credit-builder product offerings to help consumers rebuild their credit, or offer skip-a-payment options when consumers are stretched thin. Others are looking to actively educate or provide financial advice to help customers spot ways to improve their budgets.
J.D. Power’s survey also reported that 45 percent of consumers are “financially vulnerable.”
“Every bank has a different customer mix, and there’s probably banks out there that have more healthy than vulnerable customers, but if almost half of the U.S. customer bases were vulnerable, that means that every bank needs to rise to the challenge, because every bank has at least some substantial number of customers that are struggling today that need their support,” said J.D. Power Senior Director of Banking and Payment Intelligence Jennifer White.
Good Business to Help
Bankers interviewed for this story said community banks and credit unions are naturally inclined to respond in economic moments like this.
“It’s critical to our success that that we actually pay attention to our customer needs,” Cape and Coast Bank President and CEO Erik Porter said. “Ensuring their success really helps us meet the needs of our community.”
But it’s also a business opportunity for these smaller institutions to pick up customers that are left behind by large national banks.
“But what about the large number of people that don’t fit in that perfect standardized box? Well, that is a huge and important niche for credit unions and community banks to step in and fill,” Workers Credit Union’s Lockett said.
Part of that is maintaining customer satisfaction despite the difficult economic times, White said.
“Level of trust has the biggest influence on satisfaction, which means that having some of the soft skill supportive tactics be paramount that helps nurture a relationship is key,” she said. “We know that when trust is high, satisfaction is high. We know when those two things occur, average deposit levels are higher. The likelihood that they’re moving money is lower.”
Consumers dealing with financial stress are more likely to experience poor customer satisfaction, White said.
“All of this is interconnected, and it speaks to the importance of the relationship between the bank customer and the bank being a nurtured relationship that includes value added services and not just a transactional interaction,” she said.
Financial stress also impacts bank and credit union balance sheets. When consumers miss credit card or loan payments, institutions must adjust for risk. For example, on Cape Cod, the seasonal nature of the tourism industry can cause local residents to feel more stress during winter months.
“Everything we do is evaluating and managing risk,” Porter said. “Understanding our customer needs, their cash flows, and things of that nature really helps us to understand the risk and create a plan to ensure that we can meet their needs, but also be comfortable with the risk that we take on as well.”
Lenders Rethink, Rename Operations
Institutions are making proactive efforts to reshape and repair relationships that individuals who have dealt with prolonged financial stress have with their bank or credit union.
Workers Credit Union and Metro Credit Union took the proactive step to rename what would traditionally be called a collections department. Instead, the departments are named “Member Services” and the “Resolution and Solutions Department,” respectively.
“That’s not just words, it’s a mindset, and it’s a culture,” Lockett said. “Bad things happen to good people, and it’s our job to help them navigate what that is.”
Sam Lattof
Metro Credit Union is trying to make its branches conductive environments to having what can be difficult conversations.
Looking to aid a customer who is seeking financial help during a period of need can be a highly emotional and charged conversation, said President and CEO Robert Cashman, and Metro trains employees to build trust and be an advisor to customers in these difficult situations.
“We want to make sure that we’re showing empathy and that we have understanding of the current circumstances that a person may have when it comes to finances,” he said. “As you know, this is an emotional conversation, it can be difficult. We want to make sure that our employees are in a position that they can provide that guidance and advice to somebody.”
Bank executives see this kind of training paying off in good times, as well. Soft skills are crucial in maintaining customer satisfaction no matter the financial circumstances that consumers find themselves in, said Joseph Riley, Salem Five Bank’s executive vice president of retail and business banking said.
“We believe in building trust before offering solutions,” he said. “Our bankers act as advocates, meeting people where they are to ensure they feel supported and comfortable asking difficult questions without judgment. By prioritizing these long-term relationships, Salem Five aims to turn financial uncertainty into lasting stability for every member of our community.”
