Harvesting from customer loyalty

In this article, we look at factors influencing switching banks, and price differentials between new and existing mortgage customers. By analyzing changes in the margin between different customer groups over time we expand on recent research on price differentiation in loan origination. Using a unique data set of 13.080 competing offers over ten years to analyze the margin differential between other banks offers and the price they have at the time they receive a competing offer, and the price the bank offered new customers at the time they received the competing offer. We also analyze which factors influence whether the mortgage customer chose actually to switch banks by looking at customers still with the bank after 12 months. There has been an increase in transparency in pricing, and a reduction in the effort of switching banks due to increased digitalization. One would expect this to reduce the price differential between new and existing customers. Contrarily to this, we find that banks are effectively employing new strategies to keep harvesting excess margins from loyal customers.