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How Brand Loyal Are You To Your Bank?


Viking
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Spekulatius had a great comment about competition and banks. His comment is copied below. How brand loyal are you to your financial institution. When is the last time you make a change? Bank account? Line of Credit? Credit Card? Mortgage? Investment Accounts/Advisor?

 

What about thr risk of competition from online banks, since branches are less and less important. I don’t think I visit a bank branch more than once a year now. Online competition could crimp the margins over time, same than what is happening to retail. at least I think that most cost savings from digital transformation should be competed away.

 

Also, the online banking makes it easier to bank with credit unions, which have fewer branches. This is what I am doing. Then we have the risk of much higher credit losses when interest rates rise. I see reports that junk bonds are shakier than ever, does the same negligence bleed into bank loans.

 

I don’t think that banks have really moats. Maybe convenience is a moat, but once I have an app on my smartphone, how much more convenient can it get.

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Here was my response in the other thread.

 

spekulatius, you discuss many things that I have been thinking about. My read is most people are actually very loyal to their financial institutions. Branding matters and is a big deal. Most people likely use different financial institutions for different products; however, once they set up all their accounts (direct deposit, paycheques, pay mortgage, pay bills, request cheques etc) they are very unwilling to take the time to do it all over again with another institution. They also likely have built personal relationships with people at their branch and will value these. They know where the ATM’s are located etc. And there is also a pretty steep learning curve for most people to learn and use all of the electronic functionality that is becoming available (smartphone, tablet and PC); passwords have been set up. Unless they are upset, most people will not want to start over with a new financial institution.

 

It is very time consuming to do the research, pick a new provider, complete all the paperwork to transfer accounts, etc. It might sound simple but my personal experience (making changes) is it is quite stressful and time consuming. I think most people go with the flow. Unless something happens where they get angry with their current provider my read is most people stay with what they know.

 

Apple is a great example of this. It has taken me and my family many, many years to learn the functionality of our iPhone, iPad, Mac, Apple TV. Other products are cheaper and have solid functionality. Doesn’t matter. For electronics once people learn an ecosystem and they are happy it takes a big reason to get them to switch. I think banks and their electronic offerings will be the same... it will make banking more sticky.

 

Here is my personal history and how long I have been with my 3 different financial institutions:

- primary chequing accounts - 20 years (Bank A)

- primary savings account - 20 years (Bank A)

- line of credit - 20 years (Bank A)

- credit card - 20 years (will be moving in the next year) (Bank B)

- mortgage - 8 years (Bank B)

- investment adviser - 20 years (although I did move from full serve to discount) (Bank C)

 

Scale is also becoming even more critical for banking. The 4 big US banks will be spending much, much more money and so should be able to build and provide the best digital experiences for users. This will be key for investors to monitor moving forward.

 

The only think that would cause me concern is if Amazon, Apple or even Google decided to enter banking in a big way (with a full suite of products). However, I don’t think it is imminent given the regulatory burden that it will put on their total business.

 

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No way google or facebook will enter banking. These guys couldnt maintain compliance with GDPR despite having 3? years of preparation. No way they can handle the labyrinth of banking regulations.

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Spekulatius had a great comment about competition and banks. His comment is copied below. How brand loyal are you to your financial institution. When is the last time you make a change? Bank account? Line of Credit? Credit Card? Mortgage? Investment Accounts/Advisor?

 

What about thr risk of competition from online banks, since branches are less and less important. I don’t think I visit a bank branch more than once a year now. Online competition could crimp the margins over time, same than what is happening to retail. at least I think that most cost savings from digital transformation should be competed away.

 

Also, the online banking makes it easier to bank with credit unions, which have fewer branches. This is what I am doing. Then we have the risk of much higher credit losses when interest rates rise. I see reports that junk bonds are shakier than ever, does the same negligence bleed into bank loans.

 

I don’t think that banks have really moats. Maybe convenience is a moat, but once I have an app on my smartphone, how much more convenient can it get.

 

Opened an account at CIT bank this week because I was tired of getting nothing for my funds being held at one of the big four. Churn credit cards for bonuses. No loyalty to anybody.

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I agree with Viking. Mostly.  8)

 

Though it's not about loyalty. It's about laziness.  8)

 

Checking account - 18 years at Big US bank. Very unlikely to move. Like Viking said, moving would be a hassle. Resetup e-payments, etc. No thank you. I use the branch, but have no personal relationships there.

Savings account - don't have one

Line of credit - don't have one

Credit card - some cards are long time, some over 20 years, but really no loyalty. It's all about who has best cash-back bonuses. Have Fido Visa (most used maybe 2% back on everything), Bank of America (3%/2% some cats), Chase Freedom (used for 5% back categories), Discover (5% back cats), Chase Amazon (5% on Amazon), Capital One (international no fees), Amex (used occasionally), some others used infrequently. Churn sign-up bonuses when not lazy. Nowadays has to be over $XXX or more for me not to be lazy.

Mortgage - I have a mortgage broker I always use since I like him. He sells the mortgage immediately to random bank, then it gets resold. Over 10 banks over years over multiple refis. No loyalty to mortgage servicers, no consistency.

Investment adviser - no adviser. Use Fido. Have small accounts at couple other places for various reasons. Very unlikely to leave Fido. Very sticky.

 

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Okay, here is my story and my 2 cents. Though take this with a grain of salt since I'm not a typical bank customer. I do lots of wire transfers, I have accounts in 5 currencies etc.

 

In my life I've done business with all 5 of the majour Canadian banks. I would say that I am extremely loyal on the deposit/services side. Not so much on the lending size. So here's my story.

 

For most of my banking life (more than 20 years) my chequing account has been with Bank A. For a very brief period I've a chequing customer of a discount division of another majour bank - bank B. That relationship ended after I tried to send a wire and not only it was really difficult but they charged me 4 times as much as bank A. So goodbye bank B.

 

To further exemplify how happy I am with bank A: While I was an employee of bank C (a huge majour) I had a gold plated account at bank C for free. I had to have it, they would only pay me into that account. Despite all that the main account I've used was the account at bank A where I still paid a fee.

 

I have multiple credit cards, but the only one I really is the one from bank A that I've had for about a couple of decades. It's easy for me. I don't carry balances so I don't care about interest rates. I also don't like paying fees and I can't be bothered with travel hacking or anything like that. Oh and a few times when I forgot to pay my bill on time they've waived the fees and interest resulting from my failure to pay. I like that.

 

My mortgage has started with bank B and now is quite small but transferred over to bank D. I would have preferred it to be with bank A, but banks B and D offered better rates so there I am. I also have a HELOC with bank B that I never use and just sits there as a backup. It stared with bank B, they've always matched rates so I saw no reason to pay a fee to move it.

 

I also have a now small but initially huge student line of credit with bank E. I would have preferred bank A, but bank E offered a slightly smaller rate and a longer term. So off to bank E I went.

 

I hope this paints a picture. Lending in my view is a commodity so the decision is driven by price. But the deposit and service side is where banks differentiate. I'm not so loyal to my bank because of the colour used in it's marketing. I'm loyal to them because they have really fantastic service and deliver again and again and again.

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20+ years at a Chase for a checking account (I have no need for any type of debt, credit or private banking services) and I will likely never change.

 

First, I have details for hundreds of payees for online bill payments in the system.  Massive headache to change to another bank.

 

Second, I live in a town where parking is hard to find.  My branch allows me to park in their lot and run errands around town.  Very convenient!

 

Third, Chase app works well, zelle works well, and my brokerage account has all my bank details for wire transfer withdraws.  It's all set up and working.

 

I have an incentive to change as I am a long time shareholder of BAC and WFC, but Chase simply has me locked in.

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My loyalty is only up to the point where everything works fine + friction.

 

If there was zero friction, I'd change every time I had a problem and/or they created some new fee that was higher than the competition. In other words, they're pretty much a commodity to me.

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Very interesting line of discussion.  I don't think brand loyalty in this context is necessarily that different from other contexts.  What's the basis on which one choses Colgate vs. Crest?  Pepsi vs. Coke?  Tide vs. Arm & Hammer?  A huge amount of it is inertia, some of it is pure availability of one vs another, and then there's personal experience (positive or negative), and influence by others around. 

 

In my personal experience, branch geography did factor in my choice of banks.  I recently had to open an account for my teenage daughter who got her first summer job.  I ended up picking Chase for her even though it's not my bank, because I feel like she will be going to college away from home one day, and I wanted to pick a bank that has a shot of having branches around wherever she will end up.  As for myself, the last time I changed bank was because I moved to a city pretty far away, and my old bank didn't have a branch in my new city.  Even though after the account opening, I hardly ever visited the bank branch again.  It would feel strange to me to have my primary bank at a far away community bank that doesn't have any branches in the city I live, even if I could theoretically do it.

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I'm not loyal but its too big of a pain in the ass to change. I've been with a regional bank for 9 years for the simple reason that my wife convinced me to go with it when we got married. I was with US Bank before and wished I would have stayed there simply for convenience reasons (there are US Banks everywhere in the Minneapolis area).

 

As an aside, I work with retail investors. I've witnessed quite a few that have moved their accounts out of Wells Fargo. That brand has sustained some massive damage from all the scandal.

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Very little, almost zero.  But it is a PITA to move accounts with direct deposit and having entered all the data in online bill pay, figure out closest branches/atms around town, etc...

 

Although, I do like my FIDO cash management account a lot for some reason.

 

 

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Loyal up to a point.

 

I'll probably always have a checking account/insurance through USAA. Their customer experience is unparalleled. This also drives me to check them first for everything I need.

 

That being said, they weren't competitive with my mortgage loan so I took a mortgage elsewhere. But still checked them first and still used their real estate network to locate a broker to assist with the search.

 

Same on the credit card front. I'll always have an AmEx that I is as my "primary" card. Their customer experience is unparalleled. But I do play the credit card game and have 4-5 other cards that I cycle through depending on what's being purchased and when to maximize my points.

 

TL;DR. USAA and AmEx have a competitive advantage over the others while they remain competitive. But if there's better opportunities, I'll goes with the better opportunity in that limited instance.

 

Edit: sorry for typos. On my phone at the moment

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For me, it isn't necessarily the brand (though I do like that I'm supporting the local economy by keeping my money at a community bank), but the stickiness of the relationship.  As others have pointed out, moving the number of billpays contacts and re-linking 10s of outside accounts (utilities, CCs, etc) is a major pain, and they would have to do a major fubar at this point to get me to change.  As it is easy enough to move funds elsewhere for better rates, and I don't have any special needs (such as wires, currency, etc).

 

Of course, my experience may be a bit colored by having to go through the process a few years ago (and I still occasionally come across a linked account that I need to update to the new account number). 

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I am with Jurgis and others here - people stick with their bank due to laziness and switching costs (or effort necessary to switch) , not due to branding. The product is fairly standardized. I think that other financial products like brokerage/ wealth management or even credit cards have more differentiation and more brand awareness, IMO.

 

The above is one reason why the cost reduction from digitization will be competed away, IMO. I could see that large banks could potential gain an advantage by making now complex processes (like refinancing etc) more streamlined and more convenient, but I don’t see any evidence that this is actually happening.

 

I believe that outsiders and tech companies have a chance to leapfrog the banks here, but the business is heavily regulated, making it probably unattractive, despite a huge addressable market.

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