Study Raises New Questions About Bank Transfer Day Fee-asco

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Few things have captured the banking world’s attention more than Bank Transfer Day. Indeed the Credit Union Times has published no fewer than 90 different articles on the subject. But few topics stand to benefit more from the kind of clarity research can bring than the hulaballoo surrounding last year’s bank switching frenzy. Fortunately, Javelin Strategy & Research has done just that.

Based on a survey of 5,800 people, Javelin estimates the number who moved their money from any financial institution — bank or credit union — for any reason during the last 90 days of 2011 was 5.6 million individuals. 11% of those, or approximately 610,000 people, cited Bank Transfer Day as the reason.

26% of switchers stated that they made the move because their bank charged too many fees.

But was the level of switching activity seen in 2011’s final quarter abnormal? No, says Javelin.

“The total volume of those who left their depository financial institution during Q4 was not very different than in previous measurement periods,” said James Van Dyke, President and Founder of Javelin. However, Van Dyke adds this caveat: “We believe total bank-switching would actually have gone down had Bank Transfer Day not been so heavily promoted.”

The Javelin study would appear to redeem CUNA. The credit union association at first estimated the volume of Bank Transfer Day switchers around 650,000, a number remarkably similar to the one Javelin came up with. But CUNA then backpedalled, saying the total was less than a third of that. The trade group revised its numbers significantly downward, putting the number of new members joining credit unions during that period at only 210,000.

Now of course, Javelin’s figure of 610,000 Bank Transfer Day switchers includes those who joined credit unions… as well as those who moved to other banks (presumably community-based).

So how many people really did join credit unions in Q4 2011 in connection with Bank Transfer Day? Maybe around 485,000, but we will never really know for sure.

Why didn’t more people make the switch?

Research has shown again and again that people neither like- nor trust big banks. When so many people hate big banks, it should hardly seem surprising that 610,000 of them switched. The real question is why didn’t more people make the switch, especially while inertia was at its weakest?

Community financial institutions rushed to commend themselves for the sudden surge in new business they saw in last year’s final quarter. To them, 610,000 people might mean a lot. But you have to remember: Big banks like BofA have over 40 million deposit customers. Collectively, the four megabanks — BofA, Citi, Chase and Wells Fargo — have a relationship with practically everyone in the U.S. So if they lost a combined 610,000 customers over Bank Transfer Day, they didn’t even lose even 0.3% of their customer base. That’s works out to only about 1 defection for every 400 big bank customers.

“This was certainly not the massive departure banks might have feared,” he said. “We didn’t see any individual bank punished out of this more than the rest.”

Van Dyke thinks he knows why more consumers didn’t make the switch. He says consumers may have a sincere affinity for community-based financial institutions, but they feel trapped by the technologies they want — technologies that only bigger banks seem to offer.

Van Dyke says potential switchers have significant concerns about the overall downgrade in electronic capabilities that await them at community institutions.

“Young, idealistically-minded people might love small banks and credit unions,” he says. “But data show young people in particular love the technology at large banks even more.”

“Our data clearly show that smaller financial institutions are beloved by all Americans,” he continues. “Yet our benchmarking analysis show that the larger players are delivering on specific emerging capabilities that span online, mobile and social channels.”

“If young consumers are willing to stand in line through the night to get the next version of an iPhone, they’ll become fans of a financial institution that gives them a similar experience.”

That mobile and online technologies are in short supply at credit unions “should be raising alarm bells” in CU board rooms, Van Dyke warns. If credit unions don’t focus their attention in digital directions, he fears they may go the way of the Oldsmobile.

Van Dyke also credits banks’ age old friend inertia for reducing customer churn at big banks. “It turned out that technology and inertia really won the day in favor of the large banks,” Van Dyke says.

Given the technology shortcomings at credit unions and community banks (real or perceived), it’s odd that Van Dyke was surprised Bank Transfer Day switchers were predominantly not the young, low-income urban hipsters associated with Occupy Wall Street. In actuality, Van Dyke’s research found that those who left large banks in favor of a credit union or community bank due to Bank Transfer Day trended towards higher incomes. Otherwise, they were unremarkable.

“Mostly, they just looked like everyday Americans, but perhaps with a slightly fatter wallet,” Van Dyke said.

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Now of course, some big bank customers will always be switching. One-size-fits-all transaction factories invariably anger and frustrate a certain number of customers every month. It’s statistically unavoidable, which leaves big banks continually walking the tightrope between attrition and inertia.

So what can bankers do who want to improve income without alienating customers? Javelin says they need to move from a revenue model that is primarily punitive (such as overdraft, insufficient funds, etc.) to one that is proactive. Javelin says this applies particularly to larger banks, where it is even more important to “get people feeling good about paying more for more.”

Who is Molly Katchpole and Why Should You Care?

One particularly fascinating aspect of the 2011 bank switching narrative is how the story was spun. To this day, news organizations still love giving credit to Bank Transfer Day and its originator, Kristen Christian. At her Facebook page, Christian managed to get 60,000 people committed to switching on Bank Transfer Day. Meanwhile however, an online petition against BofA’s $5 fee started by activist Molly Katchpole gained over 300,000 signatures. And yet few media outlets ever reference Katchpole. Why is that?

A quick scan of Google returns only 50,000 results for Katchpole’s BofA petition. If you search for just “Molly Katchpole,” you’ll be lucky to find 200,000 results. Now keep in mind, Katchpole has started a number of online viral protests, including a revolt against Verizon’s proposed $2 fee that attracted 167,000 signatures almost overnight.

Bank Transfer Day, on the other hand, yields over 20 million references on Google.

Again, why is that? Why did the media shun the arguably more successful Katchpole for Kristen’s Bank Transfer Day creation? Why doesn’t Katchpole get any credit when she mustered five times as much support for her cause? Probably because Katchpole’s petition didn’t have a catchy name. If there’s a lesson here for viral marketers, it’s that you had better coin a good, Googleable phrase. But not even then is success guaranteed, as the Move Your Money project’s dismal performance proves.

In Javelin’s study, 11% of switchers cited “Bank Transfer Day” as the reason they left their financial institution. In all likelihood, what the data really signifies is an 11% awareness level of the “Bank Transfer Day” phrase among switchers. Without the media whipping up such interest in Bank Transfer Day, that same 11% would likely have fell into the “unreasonable debit card fee” camp.

Bottom Line: Most of the people who switched financial providers during Q4 2011 probably would have done so anyway, whether or not Katchpole created a petition or Christian organized Bank Transfer Day.

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