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Banking products: you can take them with you, so why don't you?

Working Papers

Published: 21 December 2015

Policymakers around the world call for more competition in the banking sector. One barrier to achieving this goal is consumer inertia. Despite its policy relevance, there is surprisingly little known about consumers’ bank switching behaviour. By applying the switching costs typology developed by Burnham et al. (2003), we show that switching costs differ across banking products and therefore we posit that banking products should be studied separately. We show that the propensity to switch varies across banking products (i.e. main current account, savings account, mortgage loan and revolving credit). We find that the bank-customer relationship explains the propensity to switch main current and savings accounts best, while the switching experience is the most important explanatory factor for the propensity to switch mortgage loans. We also report on perceived switching barriers and we test the effectiveness of policy initiatives to ease switching banks for current accounts. We find that the propensity to switch can be increased by introducing account number portability, whereas more knowledge of the switching service has no significant effect. Lastly we find that it will be especially difficult for foreign banks to attract customers.
 
Keywords: Banking products, switching behaviour, barriers, inertia, household survey, financial literacy, psychological factors, solidarity, bank competition, policy initiatives.
JEL classifications: D14, G21.

Working paper no. 490.

490 - Banking products: you can take them with you, so why don't you?

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