We’re hearing a lot about trust lately, particularly about banks and other financial institutions. An April 2015 survey by the National Agency of Financial Research revealed a drop from 74% to 56% when it comes to Russians’ trust in banks, and Edelman’s 2014 ‘Trust Barometer’ of 33,000 people in 27 countries showed a remarkable lack of trust in the financial services industry over a two-year period.
Yet, since the global financial crisis, trust in financial institutions is, apparently, slowly returning, but there are some worrying signs as to how this trust could be halted at the checkpoint.
- Financial institutions aren’t changing their strategies, so fees, commissions, unclear product offerings and unnecessary complexities are still rife.
- Financial institutions appear unwilling to change and adapt to a new digital landscape.
As outlined in Rick Huckstep’s recent article, trust is also a deep-seated issue when it comes to getting the right advice. As an example of this, Australia’s aging population has fallen victim to what this article (from The Age) describes as ‘rogue’ advice, whereby the message was to not rely wholly on a state pension without also considering investing in property, shares and superannuation. People lost their savings, which has inevitably dented trust in Australia’s banking industry. The Future of Financial Advice reforms may help restore faith in Australia, but only time will tell.
Another study of apparent discontent, this time by 9,000 customers in nine countries (an FIS survey), reveals that only 23% of customers ‘believe their bank is meeting their expectations’, citing safety and security as top priorities. Among this rippling puddle of misdemeanors, is it possible that financial institutions have irreparably damaged their reputations enough that no amount of rebuilding will work?
Rebuilding trust in a digital era
What this lack of trust in our global FIs demonstrates more than anything else is that change is needed. This is a digital era and somehow, by osmosis, an older generation has caught up with the younger generation in realizing that there’s a technological transformation happening in banking, insurance, payments, and so on. Those people who have spent many years investing their trust in FIs, not to mention their hard-earned pennies, have been let down and are now looking for alternatives.
This is where the disruptive startups enter the picture, and there are plenty of them. They paint a pleasant picture of how simple many financial transactions can be: making payments, finding good insurance deals, transferring money, finding a mortgage, buying goods, and so on. They are usually run by smart, enthusiastic and technically savvy people who want to make things better for customers; it’s a customer-centric approach. However, some new research from Accenture has found that when it comes to keeping our personal data safe, people trust traditional banks more than they trust startups.
The Accenture report – Banking Shaped by the Customer – reveals that 91% of Canadian consumers trust banks more than other types of companies ‘with securely managing their data’. The caveat is that ‘75% of Canadian consumers define their banking relationship as being transactional or commoditized, rather than being based on value from advice-based products and services’.
So, traditional banks may feel they have an edge over disruptive startups when it comes to providing a secure and trusted environment for their customers’ money (at least in Canada), but it comes at the expense of being an unreliable source of customer-centric advice, products and services. They may feel tempted to use this edge in the battle against disruptive startups to their advantage, which may be a mistake, as customers we describe as millennials are more switched on and will take their business elsewhere if they feel they’re not getting the value they expect from their FIs.
Another option is to embrace adaptation by changing the way they do business. Accenture recently formed an alliance with Moven, whereby they will work together to provide digital banking services that can be implemented in other markets by more established FIs. Some may say this is counterproductive to establishing a movement of disruptive fintech services, playing into the hands of the very same organizations they’re trying to disrupt, but others, such as Moven founder Brett King, believe it makes perfect sense. This is a quote by Brett from the comments section of a recent article by Finextra:
At this stage it makes sense, but not because we need banks for their awesome bankingness, but because KYC and Cap rules make it more cost effective to partner than go it alone. That and the banks we’re partnering with recognize we’re doing it faster, cheaper and better than they can, and they’ll pay us for that edge in their markets.
Startups may only be able to grow and realize their full potential by collaborating with banks, and banks may only survive this disruptive era by collaborating with tech-savvy startups. The changing landscape of digital banking means we sometimes automatically pit one against another in some form of Pokemon battle, when the long-term solution is much more complicated and requires some clearer thinking by more knowledgeable people than ourselves.
The unraveling of a distrusted financial era will be interesting to observe, and it may create some distortion of its own over time, but with customer-centricity at its heart, and a collaborative approach, it’s hard to see how it can go wrong.