Reasons to switch: empowered vs less powerful bank customers

Abstract

Purpose The purpose of this paper is to contribute to the existing literature of driving and impeding switching factors by operationalizing the catalyst factor of perceived power among customers. Acknowledging the importance of trust in a financial context, a trust-based framework for the analysis is used. The study explicitly analyzes factors of importance for subsequent switching of banks for empowered customers (i.e. savers) and low-on-power customers (i.e. borrowers). Design/methodology/approach The study measures factors driving or impeding switch of service provider, together with measures of trust and power using online survey methods. The sample is intended to focus on savers and borrowers, defined quantitatively as well as perception wise. Through a multi-group SEM analysis, differences between the samples of savers and borrowers are analyzed. The dependent variable was in both cases inclination to switch. Findings The paper manages to define differences between empowered and less empowered customers, such as borrowers and savers. The mediating effect of trust prevails only for borrowers: here, the only effect on switching behavior stems from a full mediation of stability through trust. For savers, direct influences of both service failure and lack of involvement on trust are of major importance. The importance of trust, however, is lacking; for the sample of savers, the link between trust and switching behavior is insignificant. Practical implications The results may be used as a tool box in order to address consumer switching behavior and mobility in the financial services market. The biggest obstacle for switching banks among savers is the low level of involvement. This has clear implications regarding how to increase switching, e.g., by raising interest. Focusing instead on borrowers, stability of the chosen financial institution turned out to be the most important factor. Originality/value This paper introduces a view on consumer switching behavior, taking into account differences regarding service provider relations (empowered savers vs less empowered borrowers) and the importance of trust in these two settings. The paper introduces trust as a mediator between switching behavior and four determinants: stability, personal relations, service failure and internet-related issues, and involvement.

Trust in financial institutions: A survey

“…The other economic drivers considered (the level of income per capita, bank concentration, and the presence of a deposit insurance scheme) are not significant. Likewise, in her study on the bank-switching behavior of customers of Swedish banks, Hauff (2019) finds that trust positively depends on perceived stability of the own bank. that broad-scope trust in banks in the Netherlands is lower for people whose bank had been bailed-out.…”

Trust in Financial Institutions: A Survey

“…shows the importance of the perceived relationship for banks in Denmark. Focusing on Sweden,Hauff (2019) finds that trust positively depends on the strength of the relationship with bank personnel.Trust in financial institutions also depends on (perceptions of) the financial health of the financial institution itself and financial institutions in general. For example, using their trust measures based on consumer feedback on bank products and services (see section 3),Chernykh et al (2019: 28) conclude that trust in Russian banks during the period 2010-2017 is highly sensitive to the overall financial health of the banking industry, arguing that their results "support the robust role of system-wide indicators of financial stability (such as cumulative number of failed banks, depositors affected by such failures and total bad debt in the sector) in framing the perceptions of retail customers about their own banks' soundness.…”

Online banking and privacy: redesigning sales strategy through social exchange

“…Further, a consistent collaboration between the firm and the customers positively affects customers' attitudes toward service providers online (Beuckels and Hudders, 2016). Effective collaboration between a service provider and a customer will minimize customer vulnerability as customers will be empowered to participate in the decision-making process with mutual trust and recognition (Hauff et al, 2019). Further, the influence of successful collaboration with customers will provide significant benefits to organizations as this will manifest customer retention and positive effects of customer engagement and active interaction on building customer loyalty (Khan et al, 2016).…”