Correspondence: Claire Matthews, Centre for Banking Studies and Department of Finance, Banking & Property, Massey University, Private Bag 11-222, Palmerston North, New Zealand. Tel: +64 6 13569099 extn 2329; Fax: +64 6 3505651; E-mail: C.D.Matthews@massey.ac.nz

¹is a senior lecturer in Banking in the Department of Finance, Banking & Property at Massey University (New Zealand). Her research interests are related to retail banking and include internet banking, bank branches and switching costs.

²is a Master of Business Studies graduate from the Department of Finance, Banking & Property at Massey University (New Zealand). He is the General Manager — Marketing and Products — for PSIS.

Received 16 November 2006; Revised 16 November 2006.

Abstract

Despite a reasonable level of competition in the New Zealand banking market, there is a relatively low rate of customers switching between banks. A common reason cited for the low churn rate is the costs associated with switching between financial institutions, including simply the difficulties associated with the physical transfer of existing banking arrangements. One non-bank financial institution, PSIS, introduced a pilot scheme to make it easier for existing customers of other financial institutions to move their banking facilities to PSIS. The pilot sought to understand the extent to which the switching costs associated with changing financial institutions could be reduced, and the impact that had on customers' switching behaviour. The results of this pilot scheme did not meet the organisation's expectations, and as a result, was not extended beyond the pilot period or the pilot participants. This paper provides a review of the pilot scheme, and attempts to identify the issues that contributed to the lack of success. The key findings were that there was no real demand from customers for the type of service offered, and that the time and effort involved on the part of the financial institution were greater than expected, making it undesirable to continue.