Banks have been the ubiquitous provider of various financial services and products for centuries. They continue to be the go-to for most things financial – you need a home loan you go to your bank, you need a credit card you turn to your bank etc.

While technology has enabled a number of non-banks to start providing alternatives, by a significant majority the banks still command a massive user base. But, that doesn’t necessarily mean that this will continue to be the case. There is no debate that typically the banks user base is a very sticky one. Meaning, most of us can’t be bothered moving banks even when we may not be entirely happy with our experience dealing with them. But, given it’s your hard earned money, it may pay to wrestle for it!

Coping with bad behaviour

A recent review of New Zealand banks has highlighted a number of shortcomings within these long established institutions. Many of these issues have a direct impact on how we, as consumers, are served. Fair to say, Kiwis appear not to have been as hard done by as consumers in other countries – at least not at this stage. The sentiment towards banks in the US, UK and Australia for example are sharply far less trusting.

There is no one best solution to tackle the issues raised by the review. One obvious solution may be to regulate the banks more. That is to say, put more rules and constraints around what they are and are not, allowed to do. As obvious as it may sound, the solution could potentially have unintended consequences. Additionally, you and I as individuals may not be able to influence that decision much.

Vote with your dollars

But, you and I can influence behaviour, by refusing to accept bad behaviour. Practically what that would look like is to actively make decisions to shop around for alternatives if we are not treated fairly. Commercial threats such as losing a customer can be more effective in managing bank behaviour than the spectre of regulation (which typically benefit the legal fraternity and raise costs to consumers!).

On the other hand, when you actively decide to switch your bank you will most likely incur nil costs (except in some circumstances). Furthermore, you will likely end up with more cash back in your pocket as you identify deals from other banks when shopping around.

As an example, say you decide to take a $600,000 loan over 30 years. At a 4.5% interest rate you will pay about $495,000 in interest. Should you get an offer for the same loan at 4.2% elsewhere, you would end up paying only $456,000 in interest – that’s nearly $40,000 more in your pocket!

Now imagine you propose to the bank that you are going to take your business elsewhere. That’s a half a million dollar at stake for their business – enough incentive for forcing the best outcomes for yourselves.

We would love to hear what you think of your bank and your experiences with them. Click here to have your say and find out and see what others think.

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