“Why People Don’t…”: Switch Bank Accounts
At Persuadr we are fascinated by how people make decisions, why those decisions aren’t always rational and how to communicate with people to change their minds. Our founding team spent the last 6 years researching these questions and even started a new academic domain (Computational Persuasion) to answer them.
As we launch our first product, we’ve enjoyed getting to grips with some of the thorniest real world persuasion problems that companies face. We decided to start a blog series about the ones that excite us the most, based on insights from behavioural science and other research domains. We’re starting with personal finance and “Why People Don’t…. Switch Bank Accounts”!
This topic hits close to home based on our own apparent irrationality. When my co-founder and I were looking into opening a business bank account, we each evangelised the challenger bank that we use to manage our day-to-day finances. In the process we stumbled upon the fact that both of us maintain and process all major transactions through the high street bank account we set up when we first arrived in the UK. We complain about the service and have an alternative we love, but have never seriously considered leaving. So… why aren’t we switching bank accounts? 🙍
According to the Competition and Markets Authority, just 4 banks own 70% of the current accounts market in the UK. Satisfaction with their service is below 60%. To make the financial sector more competitive and give customers the ability to vote on their feet, in 2013 the government launched the seven-working-day Current Account Switching Service. The service has transferred an impressive 5 million current accounts in the 7 years since its launch and has high customer satisfaction figures [1]. But when you consider that there are 70 million current accounts in the UK [2], most of us are not shopping around or taking advantage of the fact that it’s become way easier to switch provider.
Challengers and neobanks have been reshaping the way people manage their personal finances, but according to a study by the comparison website finder.com, only 1/10 Britons have moved over to digital-first banks entirely and half of the people using such services maintain less than £1,000 on their account [3].
What explains this inertia?
If we are focusing on switching behaviour between traditional high street banks and challengers, part of it is down to changes in the market and how we consume financial services. The offerings of the ‘big 4’ high-street banks have become much better in recent years, including revamped mobile banking experiences that more closely mirror (if not match) the convenience of neobanks.
Perhaps more importantly, tracking a zero sum competition between which provider is winning or losing customers misses the point of how people actually consume financial services today. We came across an interesting concept called accessorising current accounts [4], or shoeboxing finances, that definitely rings true to our own experience as consumers. As it’s become much easier to set up accounts and transfer funds, customers take advantage of the services of new entrants (e.g., for budget management, savings or personal loans) in addition to their original current account and see little incentive to switch wholesale. (NB: This may not be such an issue for challengers if the most valuable transactions in terms of customer data — e.g. day to day spending — are moving over to their platform!) There is also the question of risk (or a customer’s perception of it), which unsurprisingly is an issue for challengers. A recent thread on Monzo’s forum asks “Why haven’t you gone *full* Monzo?” [5]. Trust or a perception that neobanks are riskier than the high-street was a recurrent theme amongst the respondents, along with a preference for “shoeboxing” and complaints about gaps in Monzo’s service. (I must admit, I was surprised by just how important traditional services like cheques or cash deposits remain!)
So far, so logical: but challenger banks aren’t a customer’s only option and we remain with our providers even in situations when rational choice theory would really, really expect us to switch. In 2018, TSB suffered a major IT malfunction that locked some customers out of their account for weeks and accidentally declared others dead (seriously). Despite a major public fall out, the number of customers leaving TSB did not change significantly that year [6]. And despite the fact that customers using an arranged overdraft could save £180 while those using an unplanned overdraft could save £540 from switching, on average only 3% of customers take the plunge per year. Those on low incomes and most likely to have unplanned overdrafts are also least likely to switch [7]. Interestingly, the current account market is not the only one where we see lower rates of customers ‘voting on their feet’ than would be expected based on satisfaction levels. An OFCOM report, for example, shows that only 12% of people switch gas or electricity and only 6–7% switch mobile or broadband provider. The one ‘anomaly’ market in terms of customer propensity to switch is car insurance, where customers are triggered by an annual renewal event that sees over 30% switch providers.
This finally brings us to the psychological factors at play that cause customers to stick with their provider even when they are unhappy, making it tougher for new entrants to gain market share. A 2016 BACS Research Paper provides an interesting visual model of two self-reinforcing loops. Essentially, they argue that customers stay with their current provider for two reasons: one positive and the other negative. Customers in the “Trust Loop” don’t switch because they are receiving a good service, which reinforces their trust and leads to loyalty. Customers that receive a bad service don’t switch because they are disengaged with their current account product (through either a lack of knowledge or motivation) and due to the perceived risk of switching. While provider perception (and understanding life events as trigger points when a customer’s needs change and they might consider switching) are crucial to keeping customers in (or breaking them out of) the trust loop, reducing the perceived risk of switching is highlighted as key to breaking customers out of the inertia loop.
For further insight into how to keep customers engaged with a service, lower their perceived risk of switching and positively influence their perception of personal finance products, we’ve poured through the available research and picked out some insights we think banks could really benefit from:
> Understanding Customer Profiles: Tailored messaging for different customer profiles increases the effectiveness of investments in customer acquisition and retention. An analysis of customers who switched energy providers in the Netherlands identified four distinct groups, each responding to different factors when considering whether to leave or stay with a service [8]:
- Relationship inertia customers (71%): will only switch if the relationship with their current provider breaks down.
- Relationship oriented customers (14%): can be influenced by switching costs and are more likely to switch if the usage of their current product is low.
- Alternative seekers (9%): are influenced by switching costs and the attractiveness of other providers, leaving them open to being offered a better deal.
- Disloyals: represent only 6% of customers, but have a switching rate of 77%. They actively seek change and the best deal on the market.
Understanding these different profiles and the best ways of reaching them will help companies optimise who to contact, how and at what point.
> Status Quo Bias: Studies show that the pain of losing something can be twice as great as the pleasure of gaining something new. This creates loss aversion in customers, resulting in a bias to stick with the status quo. As a result, “push” factors (dissatisfaction with a current provider) tend to be more important than “pull” factors (incentives of a new provider) [9]. The most effective time to reach customers with the benefits of a new product and the riskiest time for losing them is therefore a “moment of truth” when push factors have led them to question the benefits of their status quo.
> Endowment Effect: Linked to the status quo bias is peoples’ tendency to routinely ascribe inflated values to what they own. Studies show that we overvalue our current products by a factor of three. The benefits of a new product therefore have to be cast as exponentially larger than their current solution. Recasting gains as the losses of not switching can also create stronger incentives [10].
> Choice Paralysis: Giving customers options tailored to their circumstances is great, but presenting them with too many seemingly undifferentiated products lowers their propensity to buy. A popular study on Choice Paralysis showed that customers were significantly more likely to buy jam when presented with 6 choices (40%) than 24 (3%) [11]. While differences between jams matter very little compared to say interest rates on savings, the reality is that many customers do see banks and their offerings as being ‘all the same‘ and difficult to understand. By engaging customers in a dialogue about their requirements and then presenting a limited number of relevant, easily consumable choices, banks can get better at motivating customers through their product selection journey [12].
Getting to grips with why unhappy customers fail to switch providers has been really interesting for us in two ways:
- It’s clear that banks need to learn from and take into account consumer psychology when designing their user journeys and messaging.
- Sometimes the problem is neither the message nor the delivery, but a shift in the market that conventional analysis is missing.
Let us know what you think in the comments and leave suggestions on what topic we should tackle next! And get in touch if you want to apply Artificial Intelligence, Behavioural Science and Psychology to understand and influence your own customer acquisition and retention funnel. You can also follow us on Twitter and LinkedIn for our latest updates.
You may be interested in another article we wrote about optimising the emotional load of your slogan using AI: https://medium.com/persuadr-ai/optimise-the-emotion-of-your-slogan-using-ai-7725b2576d38
REFERENCES
- Treanor, Jill. “Don’t Bank on It: Why we fail to switch our accounts” published June 18th 2018 on BBC.com https://www.bbc.co.uk/news/business-44522630
2. Ibid
3. Greaves, Edmund. “The Digital Banking Revolution is here, so why are so few people putting their salaries into app-only bank accounts?” published May 28th 2019 on Moneywise.com https://www.moneywise.co.uk/news/2019-05-28%E2%80%8C%E2%80%8C/digital-banking-revolution-here-so-why-are-so-few-people-putting-their-salaries
4. Shevlin, Ron. “How to accessorize your bank account” published 1st October 2019 on Forbes.com https://www.forbes.com/sites/ronshevlin/2019/10/01/how-to-accessorize-your-bank-account/#1361b66a6486
5. You can find a summary of the topic here: https://community.monzo.com/t/why-havent-you-gone-full-monzo/84267/2?filter=summary
6. Barrett, Claer. “What would it take for you to switch you bank account?” published 27th July 2018 on FT.com https://www.ft.com/content/02ca58c6-917f-11e8-bb8f-a6a2f7bca546
7. Little, Stephen. “Most bank customers want £500 to switch accounts” published 14th June 2019 on Moneywise https://www.moneywise.co.uk/news/2019-06-14%E2%80%8C%E2%80%8C/most-bank-customers-want-ps500-switch-accounts
8. Hartfree, Evans, Kempson and Finney (April 2016). “Personal Current Account Switching: Why don’t more people switch and what could encourage them to do so?” https://www.bristol.ac.uk/media-library/sites/geography/pfrc/pfrc1604-personal-current-account-switching-report.pdf
9. Fincham, Reynolds and Spicer. “Engagement with current accounts and the switching process” March 2015. https://www.fca.org.uk/publication/research/cass-qualitative-consumer-research.pdf
10. Hartfree, Evans, Kempson and Finney (April 2016). “Personal Current Account Switching: Why don’t more people switch and what could encourage them to do so?” https://www.bristol.ac.uk/media-library/sites/geography/pfrc/pfrc1604-personal-current-account-switching-report.pdf
11. Iyengar, Sheena and Lepper, Mark (2000). “When Choice is Demotivating: Can One Desire too Much of a Good Thing?” Published in the Journal of Personality and Social Psychology. https://faculty.washington.edu/jdb/345/345%20Articles/Iyengar%20%26%20Lepper%20(2000).pdf
12. Nursigadoo, Dhanum. “Inertia in Bank Accounts and Choice Paralysis”. Published October 9th, 2018 on 11fs.com https://11fs.com/blog/inertia-bank-accounts-choice-paralysis
