Consumers Gain More Power Over Their Banks

As customers switch and compare banks more easily, banks scramble to retain their loyalty.

By + More

Here’s some good news for frustrated bank customers: You have more power than you think. That’s according to a new report from Ernst & Young, which surveyed almost 30,000 banking customers throughout the world and found—not surprisingly—a lot of unhappy customers. Those customers were twice as likely to switch banks as they were last year and fewer than half said their current bank adapts products and services to meet their needs.

[In Pictures: 10 Ways to Give Your Money a Makeover.]

That attitude puts banks on the defensive, as they try to retain customers who can switch banks with just a few clicks. Because it’s so easy to compare bank rates and products now, it’s also easier than ever for customers to say “goodbye” when their current bank isn’t giving them what they want. As a result, banks are being forced to woo customers with extra perks, such as loyalty rewards and customized packages of various products and services.

“The way banks are going to succeed in this kind of increasingly transparent pricing environment, and a world where you can respond to the next great offer you see on TV, is this whole notion of relationship bundling,” says Clayton Baker, principal in financial services at Ernst & Young. That might mean offering customers a higher interest rate on a deposit account if they also have a car loan with the company, or a discount on the car loan if they set up automatic payments from the company’s debit account, he says.

[See 20 Hot Money Moves for Summer.]

Baker says this kind of “bundling” is just starting to get popular with mainstream banks, and will likely continue to escalate as banks figure out how to survive in today’s competitive market. Banks are also dealing with the loss of other former income streams, such as various fees that are no longer allowed under the Credit Card Act and recent changes to transaction fees.

Customers, the survey found, have increasingly high expectations: Nine out of 10 expect some kind of financial reward for remaining loyal to their bank, and 12 percent say they are planning to change banks. The most common reason for their dissatisfaction, the survey found, was fees. In fact, 9 in 10 customers said they expect basic banking services to be free.

“Customers are less trusting of their financial institution, and they feel the fees and charges are a bit excessive,” says Baker. If a customer uses several accounts at a bank, such as a deposit account as well as a mortgage, investment account, and car loan, then they don’t want to face late fees on credit cards or fees on the deposit account, he adds. “They feel like, ‘We ought to get a break on some of that,’” says Baker.

[How to Find the Best Bank Account for You]

Smaller inconveniences, such as having to make multiple phone calls to different branches of a bank to update a new address, also irritate customers, says Baker. Banks need to be centralized enough to make it simple for customers to interact with them in whatever form they want, be it a mobile device, website, branch, or phone call, he says.

Since it’s easier than ever for customers to switch banks, financial institutions that want to survive will need to better serve their customers, says Baker. The report shows that customers also increasingly mix and match their banks, treating their mortgage, deposit accounts, car loan, and other banking products as separate rather than taking their business to a single bank. Just 1 in 3 customers now relies on a single bank, and the same proportion uses three or more banks.

It’s up to banks to give customers what they want—or they’ll find it elsewhere.