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People Switching Banks More Often, Study Reveals Surprise Reasons

Consumers shop and switch more as the retail banking war heats up

J.D. Power & Associates 2011 US Retail Bank New Account Study reveals that retail banking consumers are shopping for- and switching banks at an increasing rate.

The study, which examines the bank shopping and selection process, as well as customer satisfaction with the account initiation and on-boarding processes, finds that 8.7% of customers in 2011 indicate they switched their primary banking institution during the past year to a new provider, whereas just 7.7% said the same in 2010. On average, customers in 2011 say they considered 1.9 banks while shopping — up from an average of 1.6 banks in 2010.

“The increased switching rate indicates more consumers are coming into the market, providing more opportunities for banks to acquire new customers,” said Rockwell Clancy, VP/financial services at J.D. Power & Associates. “These customers appear to be more discriminating and diligent when selecting a new bank.”

Why are people switching?

People aren’t necessarily switching for the reasons you might expect. Bankers frequently believe that the primary reason consumers switch is over service issues. Not true. Perhaps the increase in defections can be blamed on all the negative press about banks? Nope. The number one reason consumers switch banks has nothing to do with the industry’s gigantic black eye. Nor service. Nor “gifts and incentives” (aka “bribes”) for new accounts. Not even rates or price.

The #1 reason people switch banks: life circumstances. That means people are in a situation where they feel compelled to switch — e.g., divorce or moving to a new town = a new bank. With unemployment hovering just below 10%, is it any wonder people are moving around looking for work? They are going wherever jobs can be found.

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Among the other, less significant triggers that get people shopping, only 4% were motivated by promotional gifts/cash, 3% wanted specific account features, 2% did so after receiving a recommendation, and 2% had to because their old branch closed.

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How it works

For customers evaluating and ultimately selecting a new bank, the most important factors driving their decision are advertising, branch convenience, products/services, promotional offers, customer experiences, past personal interactions, recommendations and bank reputation.

Surprisingly, pricing — fees and interest rates — carried relatively little weight in influencing customer purchase decisions, despite recent heavy media coverage of changes to fees for bank accounts and credit cards.

PFI status doesn’t pay off

One of the study’s most unexpected findings is that less than one-half (43%) of customers who purchased an additional banking product made that purchase at their primary bank. For customers who turn to another institution for an additional product, promotional offers such as gift cards carry the most weight in influencing the purchase decision.

“Customers who choose to stay with their current primary bank for additional products are most driven by positive past experience and perceptions that their bank is more focused on customers than on profits,” said Clancy. “Clearly, banks that are not providing a noticeably better experience are more likely to lose the business of indifferent customers who are more easily lured by the next attractive promotional offer to come along.”

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Apparently banks that perform well in acquiring new customers — Chase, PNC and SunTrust, for example — tend to be more aggressive in their advertising and promotions.

“It’s undeniable that the ‘blunt instruments’ of ad spend, branch density, and promotional offers such as gift cards have been effective during the past year in capturing market share,” said Clancy. “The question is whether these provide sustainable competitive advantage, particularly when compared with customer acquisition gains resulting from positive past experiences with a brand and recommendations from friends and family, which are harder to duplicate.”

The 2011 U.S. Retail Bank New Account Study was based on multiple evaluations from 4,791 customers who shopped for a new banking account or new primary financial institution in a 12-month period. The study was fielded in November and December 2010, and looks at the deposit acquisition strategies of BofA, Bank of the West, BBVA Compass, BB&T, Capital One, Chase, Citi, Comerica, Fifth Third, Harris, HSBC, Huntington, KeyBank, M&I, M&T, PNC, RBS, Citizens, Regions, Sovereign, SunTrust, TD Bank, US Bank, Union Bank and Wells Fargo.

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Comments

  1. This is great data–and needs to be shared with front-line staff (not just executives). At many credit unions I hear over and over from staff, “We lost the loan, CD, etc. because we didn’t match the rate.” We need to stop making excuses and start marketing better.

  2. Aite analyst Ron Shevlin has another take on the JD Powers study that’s worth a read:
    http://marketingteaparty.com/2011/03/02/interpreting-the-jd-power-us-retail-bank-study/

  3. Mark Zmarzly says:

    Jeffry – can you clarify the source for the stats on the top drivers at each stage? I haven’t seen the full report so didn’t know if the stats were all from JD Power or not? Thanks. – mz

  4. Hi Mark. All the data in this article comes from JD Powers, although the material presented in the diagram above is not included in the free version of their report.

  5. The J.D. Power study indicates that PNC, Chase and SunTrust all did better than their peers in acquiring new customers and attributes the success to ‘advertising and promotion’. I believe that term is used very broadly based on the consumer’s (or J.D. Power’s) definition.

    In reality, we find that all three banks are unique in the consistency of local trade area marketing done to promote their checking products. In fact, Chase and PNC (previously NCB) are two of the most aggressive players in the use of direct mail around their branch sites to generate new business.

    So, it may not be the amount of advertising being done by the banks who are successful, but the consistent and targeted nature of their communications that makes them both unique compared to peers as well as top of mind when a consumer is considering changing banks.

  6. I find it interesting that one of the top 5 triggers that prompt consumers to switch is fees (17%); however, fees aren’t much of a determinant when selecting the new shop (4% driver in the selection stage). Perhaps this means that fees may have been the initial reason for the consumer’s consideration, but not the entire reason…

  7. Great catch Mia.

  8. Bryan McNair says:

    I believe that the way the bank reacts to the clients inquiry of fees is what makes up the 17%, not the actual fees. Hence the reason for it not being a determining factor in choosing a new institution. We all know there are fees but, it is how they are presented that makes the difference. Strengthening the customer service and unmet expectations calculations.

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