One In Five Consider Switching Banks, But Obstacles Hold Them Back

What’s preventing people from switching banks? And what can retail financial institutions do to make it more likely that consumers will move their money? This report has the answers.

Nearly one-fifth of all consumers with checking accounts considered switching to a new financial institution over the past 12 months, according to a new Consumer Reports National Research Center survey. The study found that those consumers wanted to change banks largely because of frustrations tied to fee increases on routine services.

The study also concluded that the burdens involved with transferring automatic payments and other factors kept half of those potential switchers from pulling the trigger.

“Unfair bank practices and rising fees are prompting more and more consumers to consider voting with their feet and taking their money to another bank or credit union,” said Suzanne Martindale, staff attorney for Consumers Union, the policy and advocacy arm of Consumer Reports. “But many consumers don’t follow through because moving your money takes a lot of time and money and some bank policies make it harder than it should be. We need to make it easier for consumers to switch banks so they have a real choice when it comes to where to keep their money.”

The Grass Looks Greener

According to the Consumer Reports survey, 19% of checking account holders had considered switching their accounts to a different bank within the past year. Consumers who considered switching were asked to name the top two reasons why they wanted to move their account to a new bank. Among the most frequent reasons chosen:

  • 43% cited fee increases for routine services.
  • 38% said another bank was offering better terms.
  • 26% pointed to poor customer service experiences.

One research firm specializing in the banking industry found that 11% of all U.S. consumers threatened to switch their primary financial institution sometime in 2012. But that number jumped to as high as 25% at Chase, and 21% at BofA.

The 2012 World Retail Banking Report survey from Capgemini and Efma found that 65% of banking consumers say they are satisfied, but only 51% say they have no plans to switch. Only 7% of U.S. banking customers said they were “very likely” to make the switch in 2012.

Switching Is a Major Hassle

Of those consumers who considered switching banks, over half said they were hindered from doing so. Survey respondents were allowed to cite multiple reasons for why they didn’t switch. Among the top responses:

  • 63% said that concerns about the trouble it would take to transfer all their automatic payments and deposits to a new account kept them from switching banks.
  • 37% indicated that the process would take too much time and effort to complete.
  • 28% said they didn’t want to pay any fees to transfer their own money.

How Banks Can Make Switching Easier

Consumers Union has called on Congress and the Consumer Financial Protection Bureau to consider a number of reforms that would make it easier for consumers to move their money and increase competition among banks. The Consumer Reports survey found that a number of these policy recommendations would make consumers more likely to switch banks. Among consumers who considered switching but couldn’t for various reasons:

  • 47% (basically half) said that a free, same-day electronic transfer of funds from the old bank to the new bank would make them more likely to switch.
  • 37% said that they would be more likely to move their money if their old bank was legally required to reroute all automatic payments or direct deposits to the new account in 14 days.
  • 32% indicated that they would be more likely to switch if they had a portable account number that they could take with them to a new bank, just like a mobile phone number.

Consumers Union has also recommended that banks should be:

  • Required to reduce check holds so consumers can quickly access deposits in new accounts
  • Prohibited from reopening accounts after consumers close them
  • Required to provide customers with clear and accessible account closing procedures
  • Prohibited from assessing unfair fees for closing accounts.

Obviously not all these recommendations are well-received by bankers.

The Consumer Reports National Research Center survey was conducted in May 2012 using a nationally representative probability-based online panel. Surveys were completed by 1157 adults aged 18+. Analyses were conducted with the sample weighted to reflect national demographics. The margin of error for the full sample is +/- 3% points at 95% confidence. The margin of error is greater for subgroups.

Trapped At The Bank

A Consumers Union report, “Trapped at the Bank: Removing Obstacles To Consumer Choice In Banking,” published earlier this year detailed a number of issues that can make switching banks a hassle. The 24-page white paper outlines a number of obstacles banks and credit unions could fix in the switching process.

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  1. Chuck Pilcher says:

    With banks having approval ratings bordering on those of Congress, I’m shocked that only 20% of customers want to switch. Most customers probably realize the grass is not that much greener on the other side. “Out of the pot and into the fire” so to speak. Certainly true from personal experience. Next move will be to a CU for sure.

  2. You’re right, consumers are very aware that “banking” is largely a commodity; one provider is basically the same as another (“my money goes in, my money comes out”). People also realize how difficult it is to transfer all their auto-pays and online billing arrangements — precisely why bankers love the “stickiness” of online banking, and online bill pay in particular. That’s usually why most consumers wait until they have a bad service experience (i.e., something really pisses them off) before making the effort to switch. If they are going to endure all the hassles of switching only to end up somewhere not much/any better, they’ll make sure they do it for symbolic reasons — e.g., to give their old bank the finger.

    Also note: A surprising number of Congressional representatives are re-elected every year, despite their dismal approval ratings. America has apparently become a tolerant, more submissive society since 1776.

  3. “What’s preventing people from switching banks?” What’s preventing people from switching from a Bank to a CREDIT UNION?

  4. Markus, the term “bank” is often used at The Financial Brand as a catchall for all retail banking providers. If there is any publication anywhere that has given credit unions a fair shake, it’s The Financial Brand.

    To answer your question, “What prevents people from switching from a bank to a credit union?”

    • Low awareness. While consumers may have heard the term “credit union,” they can’t name any specific credit unions.

    • No knowledge. Study after study proves that consumers know practically nothing about what credit unions are, what they do, how they operate, etc.

    • Exclusivity. Many credit unions have names suggesting you need to be an employee of a certain company in order to join — a teacher, firefighter, etc. Even the name “credit union” suggests to some consumers that you have to be a member of some labor union in order to join.

    • Limited access. Fair or not, consumers think banking (or whatever you want to call it) at a credit union is less convenient than at a bank. There is the perception among consumers that credit unions have less branches, less ATMs, and inferior online/digital access.

    • Limited products/services. Again, fair or not, consumers perceive credit unions as offering fewer/limited financial products and services.

  5. jo slattery says:

    I switched from a bank (Chase) to a credit union. Let me speak from experience. Twice since I have done this (around a year)
    they have sent checks to the wrong address resulting in me being fined by the receiver (odd because they were part of a run of payments where the rest seem to go correctly).
    Once they mailed my rent check the day it was due in California (CU is on east coast) resulting in a heavy fine from the management company. Since they don’t work weekends or any holidays and close at 4 p.m. I was told if I want a check delivered in Los Angeles on the first of the month I would have to process it between the 10th and 15th of the previous month (who does that??)
    The real bug about this is that they NEVER answer the phone. You leave a message and they say they will call back. I have phoned at least a half dozen times with no return call.
    The only emails I have ever received in response to my problems are to inform me that ALL of them are my fault. (I am STILL trying to get an answer as to how three auto payments to my insurance company went out fine and the last one went to the wrong address resulting in my fine).
    Be careful what you wish for when you move from a business that knows what they are doing (even though they are hateful thorough out) to a nice credit union that has thus far cost me a small fortune.

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