Bank defections rise as consumers say “no” to fees and poor service

2011 saw bank customers voting with their feet and deposits as they switched banks in search of lower fees and better service.  Confirming that, J.D. Powers and Associates this week released its U.S. Bank Customer Switching and Acquisition Study, and the results are not pretty for many large, regional and midsize banks.

The study looked at the bank shopping and selection process. Overall, it found 9.6 percent of customers said they switched their primary banking institution during the past year to a new provider, up from 8.7 percent in 2011 and 7.7 percent in 2010.

Across the spectrum of big banks to regional banks to midsize banks, the study indicates bank-switching rates averaged between 10.0 and 11.3 percent, while the defection rate for small banks and credit unions averaged only 0.9 percent, a huge drop from the reported 8.8 percent seen in the last study.

Why the uptick at the larger banks? Coming on the heels of social-media movements to encourage people to switch banks, other reasons included consumer backlash against bank fees (think Bank of America’s planned but doomed $5/month debit card fee), coupled with poor service and unmet customer expectations. More specifically, the J.D. Powers study showed one-third of customers at big and large regional banks cited fees as the main trigger causing them to shop for a new bank.

To that end, and not surprisingly, acquisition of new customers by smaller banks and credit unions increased by 2.2 percentage points to an average of 10.3 percent in this most recent period, compared to 8.1 percent a year ago.

While fees are still a huge consumer irritant, the study also suggests customer service is still at the forefront and a factor in bank switching.

“Service experiences that fall below customer expectations are a powerful influencer that primes customers for switching once a subsequent event gives them a final reason to defect,” said Michael Beird, director of the banking services practice at J.D. Power and Associates. “Regardless of bank size, more than one-half of all customers who said fees were the main reason to shop for another bank also indicated that their prior bank provided poor service.”

Against that backdrop, perhaps bankers could reflect on a quote from Microsoft’s Bill Gates: “Your most unhappy customers are your greatest source of learning.”

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