Canadians are Still Loyal to Their Primary Bank
Banks are big business in Canada. Take a look at the companies on the TSX and you’ll find four of the Big Five are in the top seven for market capitalization (over US$330 billion). And why not? Canadian banks have fostered and relied on customer loyalty for their success.
Many of us are still with the same bank we opened our first account with as a child where our parents banked. Or it was close to where we worked – in the days we actually got a paper paycheque.
Loyalty was developed early in life, then remained with the same financial institution as we got older and our financial needs changed.
When my parents immigrated to Canada, they opened accounts with the Royal Bank. Coming from England that may have been because the name seemed familiar to them. Nevertheless, 55 plus years later (and dozens of different financial advisers), the accounts are still held there.
When I started working at the TD bank back in my twenties, I was told I needed to open an account there so my pay could be automatically deposited. So, that was my main incentive to bank there. Over the years I added more accounts because it was convenient plus I got a few employee perks.
I didn’t become a loyal employee – I didn’t stay until retirement – but I am still a loyal customer.
Related: Investing in Canadian Banks
And I’m not alone. Most Canadians by and large do feel very comfortable with their financial institution and have a great degree of loyalty.
As a banker, I worked hard to achieve that loyalty. Our mandate was to sell as many products as possible to each customer. I arranged direct deposits and automatic debits to make banking easy. The theory was that the more products you have, the less likely you will be to move on to somewhere else.
A recent survey done by the Canadian Marketing Association shows almost half of all Canadians would switch to a new bank if they saw an opportunity for better service or more savings. And yet in reality the loyalty to their primary bank for most products remains, despite the feeling that they could get better deals elsewhere.
There may have been times when a customer took advantage of a one-time competing offer – a higher interest rate on a GIC for example – but they kept their main banking intact.
A common misconception is that you will receive the best rates and multiple perks if all your banking is at one place, but that is not necessarily true. The bank interprets your loyalty as making you less price sensitive.
While I did have some leeway in negotiating, we did have rock bottom pricing policies that did not always match the competition.
The assumption was that our customer service was so fantastic, why would anyone want to leave? And, you know what? I must have been fantastic, because very few people did.
Me: “I’m sorry, I can’t match the rate you were offered by ABC bank. The best I can do is “x” percent. But I can give you three months of free chequing.”
Customer: “Okay, that sounds great.”
Advantages of having all your financial eggs in one basket
So, we know your bank is trying to keep you on as a customer indefinitely, but are there advantages to having all your accounts in one place?
- When you go on-line, all your accounts are there, on one page, giving you a quick overview of all your balances. Almost half of surveyed boomers say it’s important to have the ability to do all the activities they want to on the bank’s website.
- By consolidating similar accounts – say you have direct trading accounts for your RRSP, TFSA and non-registered investments, you can usually save money on fees because they’ll take the entire balance into consideration.
- You may form a trusted relationship with a financial advisor at your branch who knows you well enough to deal with any problem situations quickly. They may also recommend new products that could fit your financial plan.
- It can be a good bargaining tool to get preferred interest rates or other perks such as waived fees. There are often promotional incentives to new customers. Don’t just sit back. Speak up and ask for the same for yourself.
The bottom line
Why are we so loyal to our bank? We have a cognitive bias about choice. When we choose something, we tend to feel positive about it, even if that choice has flaws.
We believe it will be too complicated and take a lot of time and effort to switch.
There is something off-putting about change – whether it’s your bank, investment advisor, service provider, or even your doctor and dentist. We want to stick with what we know best.
Younger generations are becoming more demanding and price conscious. They don’t have the same allegiance shown by their parents and grandparents.
The big banks are working hard to update and expand their mobile and digital services to try to retain the loyalty of the next generations.
Do you have accounts at multiple banks, or are you loyal to just one? What would it take to make a switch?