Do people really change banks?
It doesn’t happen as often as one might think. So should banks just focus on new customer acquisition?
All it takes is 10 minutes on your phone with your passport and your new current account is opened and a debit card on its way to your door. People are doing it all the time. But are they really? There is a familiar refrain in the banking world that customers are only a few clicks away from changing banks. This belief fuels the drive by so many in the industry to focus on an improved customer experience, especially via digital channels. It is one of the main selling points of neo and challenger banks. They believe if they create a superior digital experience with more capabilities than traditional competitors, they will be able to lure away customers from stodgy legacy institutions that are not tech-centered but have just bolted on some digital tools to creaky banking business models.
Unfortunately, the image of a customer bank-hopping until they find the best deal and services doesn’t quite match reality. In their annual report looking at the financial services industry, the 2019 Accenture Global Financial Services Consumer Study, revealed only “7 percent of the respondents in our survey reported having switched bank accounts over the past year, giving better value products and services as their main motivator.” This finding is further bolstered by JD Power’s 2019 U.S. Retail Banking Satisfaction Study. They found that only 4% of customers had switched banks in the prior year. Those are very low numbers of people switching banks.
Why might people not be swapping banks as much as financial executives hope? As legacy players have poured resources into their digital offerings, they have been able to deliver essentially equivalent tools to that of their mobile-only challengers. Instant purchase notifications on your smartphone, card lock/unlock, and money transfer services are all standard fare throughout the industry now. The quality of banking applications from the largest players is now at a very high level. There is no need to switch to some digital challenger in search of what are now standard features, no matter how much they may tout them as an innovative service.
What might make someone switch banks? Last year Statista, the research firm, asked the question, “In general, how likely would you be to switch from your current traditional bank to another bank if you were offered a better deal?” 877 people responded and their answers were revealing. 19% of respondents said they were “very likely” and 27% said they were “rather likely” to make the switch. Almost 50% of people indicated they would be likely to switch banks. That is a significant number of people considering a switch! However, the question is vague. What does a “better deal” consist of? When I hear “better deal,” lower fees and costs associated with maintaining the bank account immediately come to mind. New entrants certainly offer lower fees than their traditional counterparts. Other reports point to similar openness to changing banks. But again, a large gulf remains between admitting to a researcher you might be willing to switch banks and then following through on the actual deed.
The consistently low rate of churn explains why banks pour so much money into initial customer acquisition. If customers are so unlikely to switch banks throughout their life, their first choice of bank might very well be the only selection they make. We also know that many people simply follow their parents and choose the same bank. Inertia sets in and customers stay with their bank because that is the most straightforward option and it’s “good enough.”
If people don’t really change banks, what are banks to do? As I’ve written before, the nature of the client-brand relationship has changed. Younger, more socially- and image-conscious consumers don’t want to be mere “customers” of a bank. Customers are not buying a service or product from a company and expecting the relationship to end there. There is now an expectation of something more on the business end: a benefit, an experience, and an image-positive relationship with a brand. Banks that can develop an attractive offering tailored to the evolving expectations of consumers and lock them in as lifelong customers will ensure they are profitable long into the future. Financial institutions that fail to captivate the next generation will fall victim to the vicious non-cycle of bank switchers.