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Bank Loyalty Introduction In Order To Understand The Issue Of Loyalty Towards ...

BANK LOYALTY
Introduction
In order to understand the issue of loyalty towards current account providing banks for today's consumers, it is important to touch upon a brief notion of current accounts. In principal, a current account is a banking terminology for an instant access account offering banking facilities such as cheque book, cash card, guarantee card and automated payments (standing orders, direct debits etc). Simply stated, it is an active account at a bank into which deposits can be paid and from which withdrawals can be made.
Mintel's research on Customer retention for banks states that around 80% of all adults maintain a current account. In fact since the time salaries began to be paid directly into people's bank accounts, the current account has become popular. The flexibility of depositing and withdrawing money makes it so.
Almost two decades back, any bank, having tapped a customer base, could reasonably expect to hold it without much threat. However, in recent times competition between banks has increased due to Deregulation of technological developments which has resulted into blurring of, traditional demarcation lines and, allied with the advent of new entrants from beyond the financial services industry's boundaries, has resulted in a sharp intensification in competitive pressures
People Switching
Given the increase in competition people today are switching banks more often than they would have done in the 1970s. There are more options today and switching has become easier. Having stated that, for most banks and building societies, the situation is not alarming as yet. On an average about 87% people seemed to be satisfied with their current account providing banks. (See Annexure 1) Only about 12% consumers were dissatisfied with their banking services. More interestingly the rate of dissatisfaction reduced as one went up the age ladder. The youth, that is, people in the age group of 16-34 years and more so in the group of 16-24 are more dissatisfied presenting a figure of up to 15%. Such data suggests that these are the segments that would probably show greater tendency towards switching their banks.
The question that really arises here is that how many of the above dissatisfied consumers were dissatisfied to the extent that they decided to act on the matter and actually switch their banks. Another table (See Annexure 2) from the Mintel report shows the retention and defection rates over a period of two years for the current account and savings account markets. Surprisingly, only about 7% consumers switch their current account providers. Mintel report provides the logic behind such behaviour as - customer inertia within the current account market remains relatively strong A key reason behind this show of loyalty is that many customers simply find the idea of switching providers too daunting.

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