US account holders more likely to switch banks following fraud

Account holders in the US are more likely to switch banks in the aftermath of fraud, according to a new study.

Researchers at Carnegie Mellon University found that people who had their information compromised were more likely to terminate their relationship with the bank within six months of a fraudulent event, even if they were fully compensated and did not lose money.

Customer churn was especially prevalent when the bank was not able to trace the fraud to a specific party or explain what happened.

The study, Security, Fraudulent Transactions and Customer Loyalty: A Field Study [PDF], was put together by a team led by Professor Rahul Telang and analysed data from 500,000 anonymised financial services users over five years. The researchers observed actual user behaviour rather than quizzing them about their intentions.

Some of these customers (close to 20,000) were affected by unauthorised transactions on their account. These fraudulent charges were often the result of debit card fraud, social engineering or phishing. In most cases customers were reimbursed for any losses.

The researchers found that consumers were up to 3 per cent more likely to terminate their relationship with a bank following fraud.

"Our results suggest that even when the bank is not directly responsible for a fraudulent transaction, users may hold the bank responsible and terminate their relationship," the researchers conclude. "Further, this effect is much larger when users are not compensated because the bank determined that the charges might be legitimate."

Customers who are young, or have been with a bank for a long time, are more likely to quit following an incident of fraud, the study found. ®