More customers switch banks

CUSTOMER loyalty to banks is rapidly disappearing following aggressive rate-cutting by lenders, a report claimed today.

Market analyst Datamonitor found 90% of banks said the number of people who switched to other providers was increasing.

But the group said banks only had themselves to blame for the trend after encouraging customers to switch to take advantage of better rates, rather than rewarding loyalty.

It said this 'short-sighted strategy' had backfired and customer defection was now plaguing the market.

Author of the report Oksana Selezneva said: 'Customers feel very little loyalty to their banks, and they happily shop around for financial products and services that suit their needs.

'Convenience of a single provider, which used to be an important driver of bank loyalty, is a thing of the past.

'Today's customers expect added value in return for keeping all of their financial products in one place.'

The highest defection rates were in personal loans, with nearly a quarter of people changing lender within a year of taking out a loan.

Datamonitor said there had been substantial price cuts by providers who previously offered some of the least competitive rates, with many of the big banks slashing the interest they charged to attract new customers and try to stop their existing ones moving to other lenders.

Credit card holders were the next most 'promiscuous' customers, with 23% switching provider within a year of taking out a new card.

The group said the market was firmly focused on customer acquisition and pricing tactics, offering balance transfer deals and low introductory rates, often at the expense of existing customers.

But it added that card providers could also compete on brand image, in the way Barclaycard has done, with customers who felt a connection with an image or brand much less likely to be tempted away by a competitor's advertising campaign.

The research also found that people are changing their mortgage provider more frequently, with one in five people changing lender within a year of taking out a home loan.

Ms Selezneva said: 'Many mortgage providers offer subsidised deals to new borrowers and to those willing to switch from their current lenders, while neglecting existing customers.

'It is not surprising, therefore, that the market is witnessing increasing levels of customer defection.'

But she added that lenders were adopting tactics to stem the flow of defectors, such as extended tie-ins which discourage people from switching too soon, or offering the same rates to both new and existing customers.

However, the report found that customer inertia still remained strong in the current account market, where competitive interest rates were not enough to encourage people to change bank.