Banking Products: You Can Take Them with You, So Why Don\u2019t You?

Carin van der Cruijsen,Maaike Diepstraten

doi:10.1007/s10693-017-0276-3

Carin van der Cruijsen, Maaike Diepstraten

Open Access

https://doi.org/10.1007/s10693-017-0276-3

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Abstract

Policymakers around the world call for more competition in the banking sector. One prerequisite to achieving this is customer mobility. Despite its policy relevance, surprisingly little is known about consumers’ bank switching behaviour. We show that the principal reasons to stay at one’s bank are a good bank-customer relationship, practical barriers, and the perception that there is not much benefit in switching. Moreover, we find that the reported propensity to switch varies across banking products. For the main current and savings accounts, this propensity is most strongly related to the bank-customer relationship, while for mortgage loans it is especially linked to switching experience. These findings have important implications for antitrust policy; they provide an argument against using a cluster-based legal standard for the analysis of competition and in favour of a disaggregated approach. Regarding the effectiveness of hypothetical policy initiatives to lower switching barriers, we find that the reported switching propensity with current accounts is higher in the case of account number portability, while more knowledge of the existing switching service has no significant effect. Lastly, scenario analysis shows that a policy of allowing new foreign banks to enter the savings market is less promising for enhancing mobility than a policy that increases the number of domestic players.

Highlights

Policymakers frequently call for more competition in the banking sector to increase the efficiency of banking services, see for example the Global Financial Development Report 2013 (Worldbank 2013), the Australian government response (2015) to the Financial System Inquiry (Murray et al 2014) and the annual report of De Nederlandsche Bank (DNB 2015a).1 One way to stimulate competition is to lower entry barriers to attract new players
We find that the model provides a better fit than an intercept-only model for the main current account, savings account and mortgage loan (F-test, p = 0.00)
Policymakers argue for more competition in the banking sector to improve efficiency of banking services

Summary

Introduction

Policymakers frequently call for more competition in the banking sector to increase the efficiency of banking services, see for example the Global Financial Development Report 2013 (Worldbank 2013), the Australian government response (2015) to the Financial System Inquiry (Murray et al 2014) and the annual report of De Nederlandsche Bank (DNB 2015a). One way to stimulate competition is to lower entry barriers to attract new players. Consumer inertia is one example of such a barrier (The Netherlands Authority for Consumers and Markets [ACM] 2014). Inertia is a barrier for new entrants, it reduces competition among existing players in the market. The UK Competition & Markets Authority (2015a) reported in 2015 that almost 60% of account holders had not changed their main personal accounts provider in the past ten years. In the case of the Netherlands, the ACM reports that in 2014, 73% of current account holders over 18 were still with the same bank where they opened their first account (ACM 2014).. The banking products we study are the main current account, savings account, mortgage loan and revolving credit. As a result the majority of consumers have their current account and deposits at the same bank (Gfk 2014). More than half of consumers are not aware of the costs involved (Gfk 2014)

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