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Switching Banks: What Fuels Change in the Degree of Loyalty towards Bank?

Since the beginning of the recent financial crisis, meeting customer expectations has become even more challenging for the banking industry.Strategies centred on customer retention are aggressively seeking answers to,’ what will make the customers stay and what might make them leave?’ on an ongoing basis. Measuring and maintaining the degree of customer loyalty towards banks has become critical.
According to the J.D. Power and Associates’ 2011 U.S. Retail Bank New Account Study, 8.7 percent of banking customers in 2011 had switched their providers the previous year, compared to 7.7 percent in the year before. Better incentives and lucrative offers from hundreds of banks around, makes it difficult for customers to stick with their banks in case their expectations are not fully met. According to Harris Interactive survey, even though more than 20 percent of Americans using banking services were satisfied with their existing banks, they would not hesitate to switch if the right incentives were offered.

In the changing landscape of the banking industry, reasons to switch banks could be more than one. According to the results of a global survey conducted by Ernst and Young at the end of 2010, approximately half of the survey respondents were considering to switch banks on account of service levels. However, delivery of a successful banking experience is a lot more than just satisfactory service levels. As perceived by customers, the major causes of customer attrition are, rising cost of banking, channel inconvenience, distrust on their banking relationship, lucrative product offerings from competitors and living circumstances like job change, divorce etc.

As revealed by the J.D. Power and Associates’ study, high fees for products and services led around 30 percent of customers to switch their banks in 2010. In addition, the rising regulatory responsibilities will add on the financial burden of banks. These regulations, which are targeted at improving customer security and reducing unlawful banking practices, will ultimately increase the banking cost for customers. This, in turn, will add another cause for customers’ switching decision.

Despite the numerous options available in the market, a significant number of customers expressed their preference to refrain from a switching decision. This was largely due to the hassles involved while switching banks. The research conducted by consumer body Customer Focus revealed that one-third of those not satisfied with their banking services were not ready to switch on account of the fear of extra cost of switching as well as the case of not being able to manage the switchover. In order to acquire new customers, banks have also started to support them with teams of ‘switching experts’ who will help them simplify the switchover process.