Dubbed by some industry analysts as the most “unprecedented and challenging time” facing financial institutions since the Great Depression, the severity of the times may be debatable, but one thing is certain:  this period has changed consumer financial behavior and their perceptions of financial institutions.  Therefore, we have identified 10 critical consumer research issues to examine in 2010.  The complete research findings will not be available until May; however, we’ve included preliminary findings for these ten critical issues.

Issue #1:  Coping with the New Fed Regulation Regarding Overdraft Coverage

On November 12, 2009, the Federal Reserve Board issued final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or “opts in,” to the overdraft service for those types of transactions. These rules become effective July 1, 2010.  To help financial institutions address this new regulation, RFG’s Spring 2010 national consumer research identifies the extent that consumers currently avail themselves of overdraft coverage or courtesy pay offered by their financial institutions, and how willing they would be to grant their financial institution permission (opt in) to cover overdrafts for ATM or debit card transactions. Preliminary findings show one-quarter (27 percent) are not very likely to opt in for courtesy pay coverage for ATM and debit card transactions.  In addition, RFG asks consumers how they would like their financial institution to notify them to explain their choices regarding payment of overdrafts for ATM or debit card transactions, and to identify the method that would be most convenient for them to use to sign up for such coverage.  Lastly, the study explores how consumers’ debit card behavior may change if they would be denied a purchase transaction for lack of sufficient funds in their checking accounts.

Issue #2:  Mobile Banking Realities from a Consumer Perspective

In recent months, financial institutions may have read that mobile banking is beyond the testing phase and is reaching an inflection point, particularly among consumers between 18 and 25 years of age.  Can financial institutions believe what they are reading or are technology gurus and providers just hyping this hand-held, electronic delivery channel?  To separate “the wheat from the chaff,” RFG’s spring study will explore the type of cell phone, smart phone, or PDA billing plan consumers are currently using and/or may use in the future.  Further, the study identifies the extent to which consumers are communicating, getting account information or performing transactions with one of their financial institutions via texting or the Internet on their cell phone, smart phone or PDA, and the consumer’s likelihood to use their hand-held devices to perform online banking functions in the next 12 months.  The early returns suggest that less than 10 percent of all households are extremely to very likely to use their hand-held devices to perform online banking functions in the next 12 months. Lastly, the research explores the reasons why consumers will not add Internet access to their cell phone or purchase a smart phone/PDA.

Issue #3:  What’s the Buzz with Social Media Sites?

Financial institutions have to acknowledge that social networking is impacting or will impact them whether they engage it or not.  To help institutions formulate a cogent Web 2.0 strategy, RFG delves into social media by identifying how often consumers visit such sites as Facebook, Twitter and LinkedIn. And we ask consumers to explain how they would like to network with their primary financial institution on these sites. Lastly, the spring study will identify the extent to which consumers have visited their financial institution’s social media Web site.  Preliminary research indicates that less than five percent of all households have visited their financial institution’s social networking Web site.

Issue #4:  Free No More!

With talk in Washington about restricting overdraft coverage fees to one per month with an annual limit of six, industry analysts have suggested that the “free checking/NSF fee” business model may become risky for institutions if there is a shift in consumer behavior that reduces the frequency of fee-generating activities.  If such Washington talk becomes a reality in the form of a law, financial institutions will need to revamp or tweak their checking account strategies.  Accordingly, RFG’s spring survey explores consumer sensitivity to a combination of minimum balances and monthly fees.  Not surprising, the early returns detail that consumers may be more averse to higher minimum deposit balance requirements than a monthly fee.

Issue #5:  Identify the Motivation to Move

With pervasive discussions within the halls of the central bank how it will phase out its expansive initiatives that propped up the economy and yet put a curb on any incipient inflation, the Fed may be hinting that higher interest rates are on the horizon.  As a result, financial services providers need to have a firm grasp regarding current consumer attitudes toward saving and investing. Accordingly, RFG will monitor the pulse of the consumer regarding investing in the stock market, and federally-insured term and liquid banking products.  The spring study will explore the reasons that may prompt consumers to move liquid funds to another deposit or investment product.

Issue #6:  Target Marketing Is Essential

With heightened risk concerns, it becomes essential for financial institutions to become more target market specific in order to meet their lending goals.  Accordingly, RFG will detail the demand for various credit products in the next 12 to 24 months, consumer attitudes toward borrowing today, as well as profile the best targets for meeting those lending goals.

Issue #7:  Economics Remains a Dismal Science

With positive gross domestic product (GDP) growth in the third and fourth quarters of 2009, the economy, like the Phoenix, appears to be rising from the fiery upheaval of the last several years.  The question then becomes: Will these signs of growth spur consumers to come out of their spending shell to sustain the recovery?  Accordingly, the RFG survey will continue to explore consumer expectations for the economy and interest rates in the coming months.  Preliminary research data details that 49 percent of consumers expect the economy to be in the same shape that it has been in recent times and 49 percent expect interest rates to be about the same as they have been recently.  The spring 2010 study also will detail how long the consumer expects our country’s economic downturn will last as well as identify the first action/purchase activity consumers will take if they believe the economy has made the turn for the best.

Issue #8:  The Biggest Bang for Your Buck

Given that marketing budgets are tight, financial institutions need to identify the medium that will give them the most “bang” for their promotional dollars.  Accordingly, RFG’s spring survey explores the media consumers use to gather financial product information.  With such an understanding, financial institutions will be better equipped to allocate their precious marketing funds.

Issue #9:  The Return of the Annual Fee

Since President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act into law, card executives and industry participants have predicted a widespread return of the annual fee, especially for rewards cards.  Accordingly, RFG explores the consumer’s participation in credit and debit card rewards programs, and measures the consumer’s reaction to an annual fee as a requirement for card rewards participation.  The early survey data suggests that only five percent of those consumers who participate in a rewards program would continue to participate in a rewards program and pay an annual fee.

Issue #10:  Understanding Gen Y

With all financial institutions aspiring to become “younger” or attract a new generation of customers, RFG’s spring survey will continue to profile the Gen Y consumers in terms of their product usage, delivery channel behavior and attitudes toward financial services.  By doing so, financial institutions will attain a better grasp on how to attract and serve this emerging market segment.

These 10 research issues, and many more ^[1], will be covered in detail during RFG’s Strategic Planning Study Group (SPSG) ^[2]workshops this May.  Program members will receive the final results of RFG’s spring 2010 consumer research survey and  have the opportunity to attend a regional workshop this May.  

For details about attending a workshop or becoming a member, please click here ^[3].

5 Comments To "10 Critical Issues You Need to Address in 2010"

#1 Comment By Kasey Skala On March 10, 2010 @ 2:52 pm

#2 Pingback By CU Water Cooler » Blog Archive » CU Water Cooler 3/11 On March 11, 2010 @ 6:51 am

#3 Comment By Bill Thomas On March 11, 2010 @ 8:01 am

#4 Comment By Jim Morrell On March 22, 2010 @ 5:14 pm

#5 Comment By Joe On March 29, 2010 @ 2:50 pm

---