Inflation and rising rates are hurting bank customer satisfaction, report says

Rising inflation and interest rates are hurting the financial health of Canadians and eroding their satisfaction with Canadian banks, a report by J.D. Power shows.

The survey of 14,013 banking customers by the consumer research firm looked at customer satisfaction of Canada's large and mid-size retail banks.

It found a noticeable decline" in the number of customers who felt they were financially healthy, dropping to 38 per cent in July-August from 50 per cent in January-March.

The worsening financial health was most prominent among bank customers age 40 and older, according to the report.

It's no wonder that Canadians are gloomy right now," said Jim Stanford, director of the Centre for Future Work in Vancouver. The extra interest costs on their mortgages go to banks.

The banks are very powerful, very wealthy institutions and when Canadians have to pay so much more money to the banks ... I'm not surprised that the survey shows Canadians are less satisfied with the banks," Stanford said.

Satisfaction scores were lowest for resolving problems or complaints and helping customers save time or money, a key priority, the report said.

Twenty per cent of customers surveyed said they recall their banks communicating how to manage inflation or save for a recession. Eighteen per cent recall getting messages about paying down debt in a recession. While just six per cent said they acted on the communication, the report said.

Thirty-two per cent of those surveyed said they feel their bank completely supports them in challenging times.

Canadian banks have not kept pace with the changing economic conditions nor the shifting needs and expectations of their customers, at least when it comes to communicating," said Jim Miller, executive managing director of J.D. Power. Customers are focused on mitigating the challenging economic conditions, and banks need to meet them where they are - not where the banks want them to be."

Banks have done a very good job convincing people to take products from them," including debit and credit cards, opening bank accounts and purchasing mutual funds, says Kenneth Wong, Queen's University marketing professor. But there is less room to switch or boycott banks when not satisfied than there is with other consumer brands. You still need to have a bank and when all the banks are equally poor on customer service, there is no advantage to switching," Wong said.

According to the survey, the Royal Bank of Canada ranked highest in satisfaction among the Big Five banks. CIBC was second and Bank of Montreal was third.

Mid-size banks fared better than the big banks with Tangerine ranking highest followed by ATB Financial and Simplii Financial.

The mid-size banks fared well because they cater to a particular segment, such as a demographic group, said Wong. By contrast, the big banks sell to everybody. In the case of Simplii and Tangerine, they target small businesses and entrepreneurs as well as individuals, and can focus on giving satisfaction because they know exactly what services their demographics require."

The research found that those who classified as financial unhealthy were less satisfied with their banks and are almost two times more likely to be charged a fee compared with those who are in better financial standing - 54 per cent vs. 30 per cent, respectively.

As inflation rages and with interest rates surging and wage increases running at around five per cent, total debt servicing costs, which include housing costs and household debts, are estimated to run at 17 per cent in 2023. That's a historic high," said Pedro Antunes, chief economist at the Conference Board of Canada.

The Bank of Canada's measures to get inflationary pressure down and ease up on monetary tightening need to be assessed, he said. Homeowners and more recent purchasers are going to feel the hardest pinch."