The professional services firm has found that customer loyalty is falling away and that the average lifespan of a mortgage is falling with it. As consumer concerns over the economy, housing market and levels of personal debt increase, KPMG has warned that retail banks will have to contend with rising levels of customer churn which will make it difficult to maintain the profit growth of past years. Their cost-income ratios may rise, and they will also need to guard against rising provisions for bad debts.
KPMG’s research among lenders, credit card providers and retailers found that the average life of a mortgage has fallen from around seven years to nearer five, while the average life of a credit card is between two and five years. As consumers shop around more, chasing the best rates, banks will incur higher costs: lenders estimate that it is between five and twelve times more expensive to take on a new customer than it is to service an existing one.
"A new generation of financially astute young buyers regard a mortgage as a tactical investment, not a life long bond. Just as in the cut-throat credit card market, lenders need to take full account of this in the pricing, marketing and servicing of their products if they are to stay ahead," Simon Walker, partner in KPMG's Financial Services practice said.
"Brokers are becoming increasingly active in their telephone canvassing of consumers to interest them in remortgaging - banks need to consider becoming more active.”
Separate KPMG research found that 87% of consumers do not expect to be better off in 2003 and over half are concerned about their level of debt. This is likely to lead to increased remortgaging, rate chasing and retrenching, especially if house prices fall and confidence worsens. Banks will have to work hard to take on more business than they lose, KPMG said, and they will also need to be careful about their bad debt provisions in the retail sector.
