Banks could face losing up to 20 per cent of their customer base if they continue to decrease their relationship-based interactions, a researcher has warned.

Simon Bilton, a former banker with the ANZ and the BNZ, carried out research on the sector as part of his MBA looking at the effect of trust and commitment on consumer satisfaction and loyalty in both the retail bank and non-bank sectors.

He found that marketers had traditionally looked to bind customers on price (interest rates), loyalty schemes and multi-product purchases

But he warned that use of this cognitive or calculating approach was actually a negative when it came to loyalty.


"By the marketers focusing on the cognitive aspects of the relationship, the consumer is encouraged to look at alternative suppliers for a better price than that offered by their banking entity.

"As consumers are encouraged to base their decisions on price, loyalty to the banking entity becomes less influential in the decision."

Similarly the research said ATMs, internet banking and other technology were also damaging to trust.

"Banks have utilised these technologies to control their biggest variable cost; staff. The technology has decreased the banks perceived need for personal managers and direct relationship staff.

"While successfully decreasing staff costs from a transactional perspective, the more a consumer is able to rely on self-service to meet their banking needs, the less the opportunity for personal interactions between consumers and bank staff."

Bilton said interaction with staff was an important driver of the psychological attachments underpinning the affective dimensions of trust.

While moving to faster transactional services was a good thing he argued banks also needed to find ways to interact with their customers otherwise the focus would become more commoditised - all about finding the cheapest rate.

"Bank executives should continue to provide efficient transactional services but also invest in consumer interactions that provide an opportunity for a relationship to develop.

"Ignoring the affective dimensions of trust could be costly in the long run as consumers choose alternative banking or non-bank organisations they know and trust."

He also said banks should look at what non-banks were doing as their levels of consumer satisfaction, affective trust, cognitive trust, affective commitment, normative commitment and true loyalty were all higher despite the losses made during the collapse of the sector in 2007 and 2008.

"For consumers to have greater trust, commitment and loyalty towards non-bank deposit takers who as a group lost several billion dollars of investors' funds during the global financial crisis, than trading banks who lost no investor funds during the same period, must be of concern for trading banks."

Bilton said if banks continued to decrease the relational interactions between consumers and employees and rely on technology driving commitment they risked losing significant market share.

"As consumers recognise the affective component of alternative providers, increasing
numbers of consumers will have greater desire to switch providers.

"New market competition could, with relative ease, obtain the 15 per cent to 20 per cent of the consumer considering switching providers."

Read the full thesis here.