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BirdsEye Viewthe importance of customer engagement in sustainable long-term performance
“If you don’t listen to your customers, someone else will”, Sam Walton, Founder of Walmart and Sam’s Club.
A year ago I wrote an article about the critical importance – and positive correlation – of Net Promoter Score (NPS) and stock price. The concept is intuitively appealing, but the JPMorgan Chase investment banking team has provided quantitative analysis to demonstrate the efficacy of the idea. The data has been generated by J.D Power and Company.
This year the same group provided additional datapoints to support the NPS/EPS correlation. Beyond projecting rate relief around the middle of 2024 and showing the upside for bank stocks once performance improves, they offered a full section on NPS and customer experience.
In the twenty years between 2002-2022, the top ten banks by total returns had outperformed the median and bottom ten banks in Revenue per share CAGR, EPS CAGR and TBV per share CAGR. These outperforming banks typically drive a meaningful above-peer growth in these three metrics. These banks which drive growth from superior customer satisfaction without sacrificing credit or financial discipline are primarily regional banks. The top performers are Cullen/Frost (65 NPS), Pinnacle Partners, United Community Banks, Capital One, Wintrust, Trustmark, Associated Bank and Independent Bank (Rockland Trust). JPMorgan is the first universal bank on the list at #9, followed by Valley.
Watching the NPS trend is also telling. The Big 7 banks have improved their NPS to narrow the gap between the universal banks and regional banks, and many smaller banks have experienced NPS decline as well. Importantly, the banks that saw NPS score declines double or more than that of the median were also recently involved in mergers, confirming the challenges many mergers pose to the banks’ leadership in terms of customer experience and satisfaction.
JPMorgan Chase listed the banks that ranked in the top ten of NPS scores over the past 20 years, as well as those that ranked among the bottom ten. The top performers were:
Pinnacle Financial 9
Bangor Saving Bank 8
Centier Bank 8
The message is clear: It’s not about size. Even in Digital channels’ customer satisfaction, Frost, Pinnacle and Huntington have higher scores than Bank of America. The opportunity that regional and supercommunity banks have in engaging with their customers to yield mutual value creation over the long run is tangible, real and trackable. Capitalize on it!