New Zealand's Bank Switching Costs: The Regulatory Response

Banks & Banking Systems, Vol 8, Iss 3, 2013

Posted: 16 Mar 2014

See all articles by Claire D. Matthews

Claire D. Matthews

Massey University - School of Economics and Finance

Date Written: September 15, 2013

Abstract

Switching costs are a recognised issue in banking markets around the world, but in many countries, including New Zealand, regulators give them limited attention. This paper confirms the existence and relative importance of switching costs in the New Zealand banking market. We find seven categories of switching costs are perceived to exist by bank customers, with Hassle being perceived as the strongest. These switching costs are found to deter customers from switching between banks despite a desire to do so. We then consider possible regulatory responses to bank switching costs and recommend three actions for regulators. The recommendations include regulators acknowledging the existence of bank switching costs and accounting for their effects in any assessment of the extent of competition and evaluation of merger and/or acquisition requests. Regulators should also explore bank account number portability, but should leave comparative disclosure of bank products and services to the market to resolve.

Keywords: Switching costs, Bank regulation, Competition, New Zealand

JEL Classification: D12, D14, D40, G21, G28

Suggested Citation

Matthews, Claire D., New Zealand's Bank Switching Costs: The Regulatory Response (September 15, 2013). Banks & Banking Systems, Vol 8, Iss 3, 2013, Available at SSRN: https://ssrn.com/abstract=2409478

Claire D. Matthews (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

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