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July 17, 2013

Consumers more likely than ever to switch providers – FICO and Efma

FICO and Efma have released their eighth European Credit Risk Managers survey, showing that bankers believe consumers are more likely than ever to take action and switch their card or account provider if unhappy. Billy Bambrough takes a closer look at the report

By Verdict Staff

FICO and Efma have released their eighth European Credit Risk Managers survey, showing that bankers believe consumers are more likely than ever to take action and switch their card or account provider if unhappy. Billy Bambrough takes a closer look at the report

With banking scandals still making headlines and economic recovery slow at best, it is perhaps not surprising that the relationship between banks and their customers remains strained, says the report. Indeed, many bankers are now held accountable for NPS — Net Promoter Scores, a metric that compares the ratio of customers who would recommend their bank to those who would complain about it.

For the eighth European Credit Risk Managers survey, FICO and Efma explore the issue of customer satisfaction, in addition to their regular check of delinquencies and credit supply and demand. The results show that bankers believe unhappy customers are more likely than before to take action based on their dissatisfaction — not just by complaining, but by actually switching accounts.

Results of this survey show:

  • Unhappy customers are more likely to "vote with their feet" and switch banks. 41% of respondents said customers are more likely than before to switch their savings account to a different bank, and 42% said the same for current accounts. By contrast, just 14% said customers were more likely than before to open a new account at their current bank.
  • Unhappy customers are also more vocal than happy ones. While 54% of respondents said customers are more likely than before to complain to a regulator, just 18% said customers were more likely to refer their bank to a friend.
  • More than two-thirds of respondents said that customers are more likely than before to request changes to their mortgage contract.
  • 52% of bankers said that customers are more likely to use alternative sources of credit.
  • The "credit gap" for small businesses has risen after falling in the last survey. While 46% of bankers believe the amount of credit requested by SMEs will rise, only 35% believe the credit supply will rise. For consumers, the gap is smaller — 39% foresee a demand increase, 33% foresee a supply increase.
  • The forecast for delinquencies is lower overall than in previous surveys, but still high. More than 40% of respondents foresee higher levels of delinquencies for mortgages and overdrafts, and for small business loans the figure climbs to 52%. Both DACH and Iberia forecast higher SME delinquencies than the UK/Ireland.

This report shares the key findings for all respondents, and in addition breaks out specific responses by three regions: DACH (Germany, Austria, Switzerland), the Iberian Peninsula (Spain and Portugal) and the United Kingdom/Ireland.

ManelMarcetAlcaraz Director of Risk Policy & Infrastructure CaixaBank told the survey: "The impact of the recession has been particularly severe for Spanish households. Soaring unemployment, stagnant wages and increasing taxes have undermined their disposable income, resulting in a reduction of consumer credit.

"Added to that, the initial levels of debt were high and families are now engaged in deleveraging. In 2012, car loans declined by 7.9%, whereas other consumer credit (credit cards, personal loans, among others) was down by 4.4%. We expect the economy to begin its recovery phase in the second half of the year.

"However, credit demand will only pick up once the deleveraging is completed and customer confidence is restored. In order to normalize the credit flows, it is also crucial to eliminate any regulatory uncertainty regarding capital requirements. Aside from that, institutional steps towards a genuine banking union must be undertaken to prevent financial fragmentation in the euro zone.

"The economic recession has had an impact on the relationships of customers with banks. In a rapidly changing landscape of the banking sector, customers are demanding banks to be more reliable and transparent.

"They also demand banks to be updated with the latest technology, asking for greater on-line connectivity."

FICO and Efma conducted the survey of credit trends in May and June 2013 with risk professionals in Europe. The aim of the survey is to provide a forward view of potential growth and challenges in the granting of consumer credit. Participants included credit-granting institutions ranging from local banks to global institutions.

More than 80 representatives from 26 European countries and 72 companies responded to this survey. The survey asked participants for their forecast of credit risk and supply/demand over the next six months, and for their perceptions of changes in customer behaviour.

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