Banks. Interest Rates. Loyalty. Or lack thereof.
Let me ask you a philosophical question. Should businesses charge more, or less, to loyal customers? Many of you are thinking: It’s obvious, loyal customers should be rewarded with discounts. Or perhaps loyalty points.
The reality is that many businesses give discounts to new customers only. Think about free trials of services. When I searched “Free trial” on Google, the top entries included services I use every day. Xero, Microsoft, Netflix. They are all charging loyal customers MORE than what they charge to new customers.
And then consider what happens when you try to cancel services such as Foxtel, phone plans, electricity or gyms: They give you a discount to encourage you to stay. Meanwhile the loyal customers pay full price.
The banks are masters at having different prices for new versus old customers. They give introductory rates to their new customers. Do you think their loyal customers get the same low rates? No way.
The big banks’ variable mortgage rates are all around 4.9%. The only customers that actually pay this rate are the most loyal customers who have had their mortgages in place for years and are too lazy to shop around. In contrast, new customers who come through mortgage brokers are paying about 3.2%. On an average $500,000 loan, that’s a saving of over $8,000 p.a. Tax free.
The media is calling this a loyalty tax. The more loyal you are, the more you pay to the banks.
The economists see it differently. They say that if consumers don’t like it then they should shop around.
So finally, my advice. If you are a business owner: Think about how you want to treat your customers. Do you want to attract new customers by offering a short term incentive? Do you want to treat all customers equally? Or do you want to reward loyal customers? There is no right answer.
And if you are a consumer. Shop around. The more loyal you are to your bank, phone and electricity provider, the less loyal that they are going to be to you.
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