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Consumer trust has been dramatically damaged by a seemingly never-ending series of financial scandals. Read this white paper to enhance your understanding of the attitudes and behaviors of financial services customers and learn ways to win back their trust. This white paper is part of our monthly ‘Trends in Action’ series, providing insight into key consumer trends in the financial services industry.
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White paper By Fardous Rahim July 2012
White Paper
Trends in Action: Trust in Financial Services.
White Paper Trends in Action: Trust in Financial Services
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This document was written by
Fardous Rahim Associate Analyst Retail Banking
I am an Associate Analyst specializing in the Retail Banking sector, having joined Datamonitor Financial in 2011. I have authored reports on a range of topics in the banking space, including in-depth competitor and market analysis of the mortgage sector, as well as the consumer credit, personal savings, and SME banking markets. I am particularly interested in how consumer trends will interact with market forces to determine the future of retail banking. I have also worked in the Datamonitor research team, primarily market sizing and forecasting the payment card markets in over 60 countries worldwide.
If you have questions about the research, data, and findings within this document you can put your questions directly to the analysts. Simply email your questions to [email protected]. To find out more about Datamonitor Financial Services contact us at: email [email protected] phone +44 207 551 9437 Visit our website: http://about.datamonitor.com/sectors/financial.htm Or follow us on Twitter: @DatamonitorFS
DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions
stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it
should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by
Datamonitor, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of
anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor's
current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to
let anyone know if our opinions change materially.
White Paper Trends in Action: Trust in Financial Services
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The Financial Customer Intelligence framework
Presenting Datamonitor's new consumer mega-trend framework
The Financial Customer Intelligence framework presents eight mega-trends that
help us to understand the needs, preferences, and demands of consumers. It is
vital to understand the attitudes and behaviors of consumers in order to design
products and services that align with these demands.
Source: Datamonitor. Report: Marketing Strategies for Rebranding Financial Services, June 2012
White Paper Trends in Action: Trust in Financial Services
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This document will focus on the Trust mega-trend. Trust is one of the eight
mega-trends that Datamonitor has identified as being a significant driver of
consumer behavior in relation to the purchase and use of financial services and
products.
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Trust: the trends
Consumer trust, or the lack of it, is a long-standing issue in the financial
services industry. The global financial crisis of 2008 and the events that have
followed have seen the issue of trust become more acute. The financial
services sector has been plagued by a seemingly never-ending series of events
that have badly affected consumers' level of trust in the industry.
Datamonitor's Financial Customer Intelligence framework shows that in order to
build trust with consumers, financial services providers need to prove their
abilities and provide visibility on their actions. The two trends within Trust
summarize these consumer demands: credibility and transparency. This white
paper will use current case studies to showcase how each of the sub-trends is
impacting on the financial services industry now.
Source: Datamonitor. Report: Marketing Strategies for Rebranding Financial Services, June 2012
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Consumers want
providers to demonstrate
traditional values
Nostalgia
Consumers seek a return to the traditional provision of financial services and
the core values associated with this model. A focus on the customer and
excellent levels of service give consumers a feeling of confidence.
The new M&S Bank will be built on traditional values The UK retailer Marks & Spencer (M&S) is set to offer banking services in its
existing stores with the launch of M&S Bank. M&S's retail business has built a
strong reputation for good customer service and high quality products over
many years on the UK high street. It now seeks to tap into its abundant
reputation capital in order to offer customers a banking service based on these
traditional values.
Source: The Drum (2012) M&S Money rebranded as M&S Bank to reflect banking expansion
With public distrust of big high street banks high, consumers will welcome the
sense of nostalgia from banking with a provider that prides itself on the
traditional values of excellent customer service and good quality products,
particularly as M&S has a good track record.
Handelsbanken raises the profile of the local branch Swedish bank Handelsbanken evokes a sense of nostalgia by
having a decentralized system that puts much of the
decision-making power in the hands of the local branch
manager. The bank focuses on building relationships
White Paper Trends in Action: Trust in Financial Services
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Recognizable products and services give consumers a sense of trust
with customers and tailoring products and services to their needs, rather than
expecting customers to adapt to products and services.
The close relationships built between local branch staff and customers help to
foster a sense of trust. Customers know who they are dealing with and who to
go to with any problems. This model has helped Handelsbanken to grow even
in the tough current climate.
Familiarity
Consumers seek out brands and products that fit in with what they already know
or have experienced. Products that are tried and tested, either personally or by
peers, offer reassurance to the consumer.
Consumers stick to what they know when it comes to mobile payments Research from GfK NOP indicates that consumers would prefer to make near
field communication mobile payments through a financial institution rather than
through a mobile network operator, handset manufacturer, or
operating system provider.
Consumers are familiar with banks' services in this
domain and they are recognized as being able to
process payment transactions safely, which breeds a
sense of trust. Consumers feel that financial institutions,
particularly high street banks, already look after their
money and process payment transactions, therefore mobile
payments is a natural next step.
Offerings that are recognizable to consumers or familiar to their peers provide a
sense of trust. Datamonitor's 2011 Financial Services Consumer Insight (FSCI)
Survey reveals that providers and products that have been tried and tested by
peers have a strong bearing on consumers' decision making. When choosing a
current account 39% of global consumers said that a recommendation from
family or friends who are familiar with the provider is essential. This figure was
White Paper Trends in Action: Trust in Financial Services
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Consumers expect their
providers not to make mistakes
highest in the high-growth economies of Brazil (68%), India (57%), and China
(49%).
Competence
Consumers demand that their providers are able to carry out the tasks required
of them in an error-free manner. Experience in the financial services industry
helps to demonstrate that providers are capable of accomplishing the tasks that
consumers require of them.
Royal Bank of Scotland Group's IT failure has damaged the perception of its competence The recent IT failure that led to customers of NatWest, Ulster Bank, and Royal
Bank of Scotland (RBS) finding that their account balances had not been
updated, leaving many unable to withdraw money, has damaged RBS's
reputation for competence. The fact that it took several days to resolve, and for
some customers several weeks, further tarnished this image.
Consumers expect their banks to carry out fundamental banking services such
as processing transactions in an error-free manner. A failure to do so has called
into question RBS Group's competence in performing its core business
practices.
The delay in providing an explanation for the issues will
not have helped consumers' reactions to this event.
However, the extension of branch opening hours and
the doubling of call center staff will have gone some way
towards placating customers. RBS has also promised to
repay any charges or fees that have been levied on
customers as a result. Still, the image of lapsed competence will
endure for some time to come. Consumers will need reassurances that the
failure cannot be repeated.
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Simplicity
Straightforward products and services that consumers can easily understand
make an attractive proposition. Consumers want offerings to be obvious and
clear.
American banks are helping consumers to understand fees by simplifying disclosure forms In response to criticism, Chase, TD Bank, and Wells Fargo have shortened their
disclosure forms to three pages and made them easier to understand. Bank of
America and Citibank have announced that they too will start to use simpler fee-
disclosure forms.
Source: JPMorgan Chase & Co. (2012)
The changes are in response to a 2011 study by Pew Charitable Trusts, a
consumer advocacy group, which found that the average checking account fee
disclosure forms at the 10 largest banks in the US totaled 111 pages. Moreover,
the disclosure forms were said to be laden with technical jargon. Naturally,
consumers who do not read the entire disclosure forms or who cannot
understand the jargon are often surprised when they are hit with a fee that they
were not aware of. As a result trust was diminished as consumers felt that
banks were hiding important information about their products.
Shortening fee disclosure forms and making these easier to understand will
help to rebuild consumer confidence in banking products. It is important to
consumers to be able to understand financial services products and services.
Overly complex offerings that are difficult to comprehend will put consumers off:
simple and straightforward products are more accessible to consumers.
White Paper Trends in Action: Trust in Financial Services
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Providers must be
seen to be honest
Integrity
Consumers seek providers that genuinely try to be good or make a positive
contribution to society. Demonstrating honesty is essential to showing
consumers that a provider has Integrity.
The LIBOR scandal has further damaged the perception of banks' integrity In June 2012, Barclays was fined $450m by US and UK authorities following
revelations that it had illegally sought to manipulate the London
Interbank Offered Rate (LIBOR). Regulators around the
world are currently investigating other banks for the same
offence, including Deutsche Bank, Citigroup, and UBS.
The scale of the allegations has potential to once again
shatter consumers' perception of integrity in banking.
News of this story was met by considerable public anger. As the rates that
consumers pay on their mortgages, personal loans, and credit cards are
potentially linked to the LIBOR, many feel that Barclays tried to increase its
profits and protect its reputation at the cost of consumers. Some of Barclays'
customers also resent the fact that the fine may be passed on to them in the
form of higher fees and charges.
Customers are turning to "ethical banks" as trust in mainstream providers declines The increase in the number of consumers who are banking with "ethical banks"
shows how consumers are seeking out providers that actively demonstrate
integrity in their practices. Charity Bank reported a 200% rise in new depositors
in July 2012. The bank only lends to charities, social enterprises and community
organizations, some of which find it difficult to access credit from the traditional
banks.
Although "ethical banks" do not offer market-leading rates of return on their
savings products, their recent rise in popularity suggests that some consumers
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Consumers need to be
reassured that their money is
safe
are happy to accept a social return. Integrity is inherent in the lending practices
of banks such as Charity Bank.
Reassurance
Consumers demand reassurance that their money is
safe and that they are protected by their finances.
Consumers want to be kept up to date and informed
about their finances.
The suspension of several South Korean providers has led to a collapse in trust In May 2012, four South Korean savings banks were suspended for failing to
comply with minimum capital adequacy standards. This move followed the
suspension of 16 South Korean providers in 2011 in the wake of financial
difficulties caused by rising levels of bad debt on risky property loans. As a
result of these events, about 88,000 depositors and bond holders have lost in
the region of $857m worth of savings. Between August 2011 and March 2012,
deposits held with savings banks fell by 23% as savers defected to providers
they perceived as safer.
The bank scandal has had a profound impact upon consumers' perceptions of
trust in South Korea. Datamonitor's 2011 FSCI study found that there was a
23% decrease in the proportion of consumers who trust their bank to act in their
best interests, the lowest among the 21 markets surveyed.
Nationwide reassures customers by keeping them up to date In June 2012 Nationwide Building Society launched "SavingsWatch," an
initiative that notifies customers of any changes to their savings rates by text
message or email. Nationwide will inform customers when their variable rate
has gone up or down, and whether it is due to a change in the base rate or a
change initiated by Nationwide.
White Paper Trends in Action: Trust in Financial Services
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SavingsWatch creates a feeling of reassurance and transparency by keeping
consumers in the loop about any changes to their product. It fosters a sense of
trust as consumers know that their provider will not cut their variable rates and
catch them unawares.
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Conclusions and Implications
Trust has a very real impact on the behavior of consumers. These case studies
demonstrate how recent events in the financial services industry have had a
significant impact on consumers and how they view the industry. Providers
should use the Financial Customer Intelligence framework to align with
consumer needs and present a more attractive proposition.
Trust needs to be communicated at both a brand level and a product level
The message delivered to consumers on the issue of trust must be consistent
across both the corporate level and the product level.
To generate trust at a brand level providers have to be seen as competent in
carrying out consumer needs. Consumers tend to trust brands with which they
are familiar or have previous experience. Providers need to show that they
share consumers' values in terms of excellent customer service and can
communicate with them clearly in their own language.
At a product level trust can be fostered by making the product transparent and
easy to understand. Consumers will trust a product if it has been tried and
tested, either personally or by peers, and if the provider has experience in
delivering similar products. Consumers need to be reassured that their money is
safe and that they are being kept up to date with any changes made to the
product.
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Messages of trust need to be reinforced through communication Financial services providers must communicate a message of trust across all
touchpoints and all channels. Effective communication with customers is
essential in order to ensure that they know the values and aims of a brand. If
the communication of brand values is not consistent, the message may be lost
or cause confusion.
Key takeouts • Transparency on both positive and negative issues is vital –
Consumers demand openness and honesty from their financial services
providers in order to build trust.
• Keep products simple where possible – Consumers want to be able to
understand the products and services that they use so they can trust that
they are suitable.
• Speak to consumers in their own language – Technical terms and
jargon are likely to foster distrust among consumers who want to fully
understand any financial services offering.
• Communicate with consumers so that they are up-to-date with their finances – Being upfront with consumers about changes to products or
better deals will reassure consumers.
• Focus on the core values of banking – Even in the modern and online
world it is vital to demonstrate the value of good customer service and
empathy for the individual.
• Get the basics right – Consumers expect everyday services to work
promptly and in an error-free manor.
• A provider's trust message needs to be consistent – Consumers
need to trust the provider at both the corporate level and the brand level.
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Further Reading
Marketing Strategies for Rebranding Financial Services
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Rebuilding Trust in Retail Banking
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White Paper
Trends in Action: Trust in financial services
ABOUT
Datamonitor Financial Services
At Datamonitor Financial Services, we deliver intelligence-led insight and data
on financial services markets, competitors, and consumers. Our robust
forecasting methodologies, proprietary databases, and the experience and
knowledge of our in-house analysts help clients to make better strategic
decisions in the areas of Retail Banking, Cards & Payments, Savings &
Investments, Private Wealth Management, Life & Pensions, and General
Insurance. Our research on cards and payments covers competitor
developments, consumer attitudes, market forecasts, and technology
developments, highlighting current and future trends. The Global Payment Card
Analyzer, our proprietary online tool, includes market size, consumer, and
competitor data for 60 countries.
If you have questions about the research, data and findings within this document you can put your questions directly to the analysts. Simply email your questions to [email protected]. To find out more about Datamonitor Financial Services contact us at:
email [email protected]
phone +44 207 551 9437
visit our website: http://about.datamonitor.com/sectors/financial.htm
Or follow us on Twitter: @DatamonitorFS
Datamonitor is owned and operated by Informa plc ("Informa"), the registered office of which is Mortimer House,
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