Determinants of bank-switching behaviour within a South African context

Abstract

The easing of regulations in the global banking industry has allowed entry to new financial institutions. This has led to an increase in competition since banks provide nearly identical products or services. Thus, granting bank clients with an opportunity to choose their preferred bank. As banking clients and depositors became more service- and price-conscious in their purchasing behaviour of financial services, their banking behaviour increasingly became prone to change. As a result, bank customers tend to switch banks due to underlying factors influencing their behaviour. On the other hand, banks strive to retain and attract more clients as this may increase future income and reduce the risk of liquidation. In South Africa, with more banking clients switching banks, only a few studies have explored bank switching behaviour. Therefore, against this backdrop a research gap was identified. The primary objective of this study was to examine the determinants of bank switching behaviour of depositors in a South African context. A quantitative research methodology was adopted to address the research objectives of this study. All South African depositors form part of this study’s target population. However, since the South African banking industry is highly concentrated, the sample frame comprised of only the top five banks’ depositors. The top five banks were utilised as these virtually represent the entire population in terms of the largest customer database (market share). The top five banks comprise of Absa, First National Bank (FNB), Nedbank, Capitec Bank and Standard Bank. Moreover, a non-probability purposive method was utilised for this study to meet the following sample criteria: living in Gauteng, older than 18 years, has some level of education, and earning an income deposited into a bank account. In this research journey, an exploratory factor analysis (EFA) has been employed to determine the important factors for bank switching behaviour of depositors in Gauteng. After conducting the EFA, five factors were extracted as a result. Based on their importance, these factors comprised of empathy that had items relating to cognitive and emotional feelings regarding the bank service quality. Bank switching, which had items relating to the reluctance of depositors to switch from their current bank to another. Reliability had items relating to accurate and timeous bank service performance. Responsiveness had items relating to skills and willingness to assist bank clients. The last factor, tangibility had items relating to tangibles such as technology, appearance, and physical facilities that can influence bank switching behaviour of depositors. All the factors indicated internal reliability, suggesting practical significance. The findings from this study have also shown that a positive relationship exists between bank perception of depositors and bank switching. Hence, bank perception of depositors influences their likelihood to switch banks. Age was the only demographical factor influencing the likelihood of bank switching. Education levels had a negative relationship with risk tolerance, implying that a higher level of education leads to lower levels of risk tolerance. On the other hand, behavioural finance biases such as representativeness, anchoring, gambler’s fallacy and overconfidence had a combination of negative and positive relationships with the demographical variables of the sample. The significant factors influencing bank switching behaviour of depositors include reliability of timeous and accurate bank service performance, customer satisfaction, and representativeness and loss aversion bias. Customer satisfaction was found to be the most contributing factor influencing bank switching behaviour of depositors. Several banks are attempting to find solutions and strategies on how to offer better quality services competitively to satisfy and retain their customers. Therefore, banks will benefit from the empirical findings of this study since they provide banks with an understanding of the factors causing the switching behaviour of depositors. Hence, banks can incorporate customer satisfaction-oriented strategies for customer retention to realise higher future profits and avoid liquidation problems. Banks will be able to reduce costs when they retain and expand their customer database. Regarding the empirical research findings of this study, recommendations and managerial implications were provided. Limitations form part of any research study and this study is not an exception. Future researchers can therefore use this study as a foundation to take on a new direction. Although the sample size of this study meets the sample adequacy for the nature of this study, it is recommended that future studies expand the sample size and consider the cultural and demographic implications of a particular region. As this study merely focused on Gauteng depositors, future researchers can investigate the changes in the significance of the determinants for bank switching behaviour.