Bank customers are more likely to stay with their bank than their husband or wife, according to a UK study.*
As competitions heats up in many industries, shopping around for deals has become the norm. But not with our banks. Yet switching can potentially save thousands on interest rates, fees and better deals.
Our reluctance to switch is becoming an issue for our economy and comes at a price to consumers. Stability over innovation has been the foundation of the Australian banking industry. And this policy served us well during the global financial crisis but the industry is due for a disruption.
Australian government policy – The Four Pillars – prevents the major four banks from merging, and gaining a monopoly. However, with recent acquisition they now hold around 84% of loans in Australia.
The risk is that they may be unprepared for emerging disruptive financial technology – similar to the Uber disruption to the taxi monopolies. Already within the financial industries we have new tech players SocietyOne and PayPal.
SocietyOne is a peer to peer lending digital platform backed by the likes of James Packer, Lachlan Murdoch and Ryan Stokes. They started providing car loans to Uber driver where payments are taken directly from their Uber earnings.
Or PayPal where they provide working capital loans and repayments are taken directly from payments received within your PayPal business account.
Rob Nicholls from the University of NSW says, “This shows how innovative fintech start-ups can win niche business in the digital economy from banks.” He goes on to state that, “we need to have such disruptions and innovations, doing things differently.”
Based on the principle that a monopoly has little incentive for innovation, researchers from UNSW argue that getting consumers to switch banks is one way to lift the level of competition in retail banking in Australia.
With increased competition, it makes economic sense that we would see lower loan rates and more innovation if customers switched banks to get the best deals, and regulators have been actively encouraging banks to make it easier for clients to move.
We happily shop around for electronics and petrol, but the inertia when it comes to banks has been blamed on deep-seated psychological reasons. It’s believed that our tendency to avoid loading our brain with avoidable decisions is the reason we don’t make the switch. Psychologically we prefer the quick fix and we know that changing banks is time consuming and benefits of lower rates aren’t realised until further down the track.
Due to the large number of interrelated services they provide – mortgages, insurance, cards – banks make the process far too complicated for people to make the move.
Australian and various international governments have tried and mainly failed with their initiatives to get consumers switching banks. The most recent ‘tick and flick’ scheme only attracted a very small number of takers.
Have you considered switching banks? The chances are good that you’ll be better off financially.