This quote from Gary Hamel at BAI is brilliant in its simplicity and unfortunately truth. (Courtesy of Jim at NetBanker)

The biggest profit center at banks is customer ignorance, which banks have mistaken for customer loyalty.” — Gary Hamel, speaking to 1000+ bankers at BAI’s Retail Delivery Conference, Nov. 15, 2006

Source: NetBanker 2.0: Bank-account switching tools from Intuit and uSwitch take center stage

His focus was internet based switching tools. 

The importance of switching tools

Hamel believes financial services loyalty will disappear once customers find out how easy it is to move their accounts to pick up a 100 basis points on their savings rate or avoid $35 overdraft fees.

I recall back at the beginning online in the late 90’s we all pontificated about the elimination of switching costs that internet wrought.  Well the product guys won round 1, and that prediction has not come true … yet.

The difference now is that there are enough customers using online and relying on it .. in fact insisting on it.  So along with the comfort level with online self service comes the willingness to use for new and innovative purposes, including switching.  uSwitch is especially interesting because Banks are just a subset of what they deal with.  This is a great model, and more reflective of how customers think .. banking at some levels is just another annoyance, along with electricity and phone service.

Gary rightly points to three examples:

1. uswitch.com
2. Yodlee.com (my coverage here from Sept)
3. Intuit
4. I would add Davis & Henderson in Canada with their eswitch product

Relevance to Bankwatch:

The issue for Banks here is not whether any of these services work well or not.  One way or another they will work and there will be more of them.  Its a pain to have to change all your direct debits, salary deposit etc, and if you get annoyed at your Bank and can switch with one call, this eliminates switching effort, costs (which will be picked up by your new Bank) and effectively reduce Banks to have to focus on the one thing that matters – service and loyalty.

Relevance PS:  Why can’t a Bank provide this service?  In particular it would be interesting for a Bank to disassociate customer relationship from financial products.  Build customer trust, help them find the services they need no matter which institution, and the benefits that will build from that trust would be enormous, and perhaps pave the way for the other 90’s prediction, Open Finance.