The majority of consumers are missing out on savings as they did not shop around when originally choosing a bank and do not consider switching, a report by the Economic and Social Research Institute (ESRI) has found.
The research, commissioned by the Department of Finance, surveyed a national sample of almost 3,000 consumers, providing a detailed account of consumer behaviour in retail financial services.
Despite the recent exit of Ulster Bank and KBC Bank Ireland from the market, the research established that switching rates in the past five years varied between 6 per cent for mortgages and loans to 17 per cent for bank accounts.
Most consumers do not consider switching their loan (69 per cent), credit card (59 per cent) or mortgage (54 per cent). Less than 3 per cent of product holders start the switching process but do not end up switching.
Consumers are mostly prompted to look into switching to reduce spending or due to increases in price/fees by their provider, rather than seeking better customer service or different product features.
Consumers predominantly report not having shopped around when originally choosing their bank accounts (73 per cent), loans (68 per cent) and credit cards (74 per cent).
Nearly half of mortgage holders (46 per cent) did not compare different offers when first choosing their mortgage. A significant minority also report not having compared offers when looking into switching their financial products (ranging from 26 per cent for mortgages to 46 per cent for loans).
Difficulty in comparing offers, uncertainty about the process, the costs and benefits of switching, and fear of making a mistake, emerged as significant barriers to switching across products.
The time investment and paperwork required to switch are commonly reported as reasons for not switching. Consumers report facing more difficulties when considering switching their mortgages compared with switching other financial products.
In terms of demographics, women and younger consumers (18-39 year olds) are less likely to hold credit cards or mortgages.
People with lower household incomes are less likely to have switched their mortgage in the past five years and less likely to have compared offers when originally getting their mortgage and credit card compared with people on higher household incomes.
Those educated below degree level are less likely to have compared offers when originally getting their products compared with those educated to degree level or above.
The ESRI said the results suggested switching rates could be improved by increasing consumer knowledge or comprehension of certain aspects of the market, such as procedural steps in the switching process and the benefits and costs of switching.
Boosting their capability and confidence to interact with the market was “important too”, however.
“A stronger focus on mortgages and loans is likely to be beneficial due to the low switching rates in the case of loans, the increased difficulties consumers face in the mortgage-switching market and the scale of potential savings,” the report finds.
Pete Lunn, head of the ESRI’s behavioural research unit, said: “Consumers could make substantial gains by choosing better-value financial products, but many feel unable to do so. In the next stage of this research programme, we are using the study findings to design digital tools to help people to understand the market better and to feel confident enough to shop around for better deals.”
Minister for Finance Michael McGrath said the issue of affordability had “serious impacts” for many consumers.
“For mortgages, in particular, a household may have seen an increase of many hundreds of euro per month on their repayments over the last year. We need to do what we can to get better value all round for consumers and one way they can get better value is by switching financial products or providers.”