Retail Bank Customers Show More Interest in Shopping Around for New Banks

It's not unexpected that with the economy more stable and the financial crisis seemingly resolved, consumers are feeling more confident about shopping for and switching to new primary banks -- good news for institutions that are investing in providing a better customer experience and concerning for those that are playing catch up in this regard. What might be more surprising, however -- at least according to the results of the J.D. Power and Associates "2011 U.S. Retail Bank New Account Study" -- are some of the factors persuading customers to make a change.

Or, rather, what is NOT driving them to switch. The J.D. Power research indicates that, despite recent media and political focus on changes in fee structures for bank accounts and cards, pricing (fees and interest rates) appears to carry relatively little weight in influencing customer purchase decisions. Also, poor service and unmet expectations evidently are not in and of themselves enough to convince consumers to switch banks.

Rather, according to Rockwell Clancy, VP of the financial services practice at Westlake, Calif.-based J.D. Power, the most common reason for switching banks is a change in life circumstances. For customers evaluating and ultimately selecting a new bank, the most important factors driving their decisions are advertising, branch convenience, products and services, promotional offer, and direct and indirect customer experience (including past personal interactions, recommendations and bank reputation).

"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, in a press release. "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."

In 2011 8.7 percent of customers indicated they switched their primary banking institution during the past year to a new provider, according to the study, which examines the bank shopping and selection process, as well as customer satisfaction with the account initiation and on-boarding processes. This is a notable increase over the 7.7 percent of respondents who 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 Clancy. "These customers appear to be more discriminating and diligent when selecting a new bank."

The study indicates that banks that perform well in acquiring new customers tend to be aggressive in their advertising and promotions, and identified Chase, PNC Bank and SunTrust Bank as stand-outs in this regard.

Another unexpected finding was that fewer than half (43 percent) 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, according to the J.D. Power research.

"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."

The 2011 U.S. Retail Bank New Account Study is based on multiple evaluations from 4,791 customers who shopped for a new banking account or new primary financial institution during the past 12 months. The study was fielded in November and December 2010, and includes Bank of America; Bank of the West; BBVA Compass; BB&T; Capital One; Chase; Citibank; Comerica Bank; Fifth Third Bank; Harris National Bank; HSBC; Huntington National Bank; KeyBank; M&I Bank; M&T Bank; PNC Bank; RBS Citizens; Regions Bank; Sovereign Bank; SunTrust Bank; TD Bank; U.S. Bank; Union Bank; and Wells Fargo.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio