The nuts and bolts of what makes and breaks trust in financial services – and why it remains a key strategic advantage.
Trust is the second most important factor consumers consider when buying financial products. It ranks second only to “ease and convenience” (47%), but only by a whisker (45%). Trust even outranks price (43%), a fact which might raise a few eyebrows.
But why is that? Why does such a “soft” factor, rich in emotional nuance, play a critical role in making financial decisions. Neuroscience has some interesting answers.
“Complex thought, working memory, and self-control all draw on the same limited reserves from the effortful conscious brain.” – Tim Ash, Unleash Your Primal Brain
Simply put, new, complex information drives cognitive effort for consumers, which our brain perceives as pain. Whenever bank clients don’t understand a product or the context, they’re very unhappy and increasingly likely to unconsciously avoid that experience in the future.
Case in point: a 2018 Accenture study of 900 companies found that a drop in trustworthiness cost organizations $180 billion in revenue over just two years. What’s more, 46% of consumers – out of 25,000 surveyed – who switched companies in the previous year “did so because they lost trust” in it.
Let’s dig a bit deeper into what this looks like when consuming financial products and why banks must elevate the role of trust on the organizational agenda.
“Distrust still remained as a consequence of the crisis. Banks are now rebuilding trust and loyalty.” – Research: Banking system trust, bank trust, and bank loyalty
This research paper from 2017 highlights how extensive the consequences of losing trust can be. It’s not just about the short-term financial losses, but more about the invisible costs of regaining trust over the following years.
To this day, banking experiences are still stressful because of complex products and opaque pricing that put the onus on the consumer to understand them. This pervasive unfamiliarity activates the stress response in potential clients and their body reacts as if it’s incurring actual physical harm.
Consumers need banks they can rely on, that feel predictable, approachable, supportive, that walk the talk. Unfortunately, that’s still not the case for the majority of financial experiences.
Current breaking points that impact trust include:
- limited working hours
- the need to go to a branch or call a bank officer
- lack of mobile apps
- convoluted terms and conditions
- the fine print
- use of jargon
- lack of integration with other apps the customer uses
- no real-time updates on their financial standing
- and lack of support for ongoing financial education.
These negative experiences tend to accumulate and are deeply etched into the brain, which is already wired to help us avoid reliving poor experiences – at all costs.
But here’s what’s also interesting: because humans are not rational decision-makers (try as we might!), we see trust in relative terms. If a bank already has the client’s trust, they might brush off a negative experience as an exception. Conversely, a distrusting customer will label the same experience as a sign of incompetence and unreliability.
“Trust is important for customer-bank relationships and for customer relationships in general, for quite a number of reasons. Trust facilitates transactions with customers. Customers do not have to worry about their personal interests being taken care of, their savings with the bank, and the financial products they have bought or plan to purchase from the bank, which include insurance policies and mortgages. With a high level of trust, customers feel confident that their interests are well served by the bank. To a certain degree, a high level of trust is a buffer against negative experiences which can arise amongst customers.“ – Research: Banking system trust, bank trust, and bank loyalty
There’s another reason for cultivating trustworthiness: consumers who trust their bank will take multiple products from them. The same if they’ve been with their bank for a longer time. In a virtuous cycle, the more assured they are of their financial service provider, the more products consumers are likely to buy from them.
Neuroscience clearly shows that most of our decision-making is emotional and guided by unconscious habits and mental patterns. As an inherently emotional belief, trust plays into these habits and mental reflexes, influencing most of our actions and decisions. Paying attention to it is not a whim – it’s a necessity.
The five factors of trust in banking
“Ennew & Sekhon (2007) distinguish five determinants of trustworthiness of financial services: (1) benevolence (customer orientation), (2) integrity (fairness), (3) ability / expertise (competence), (4) shared values, and (5) communications (transparency).” – Research: Banking system trust, bank trust, and bank loyalty
Breaking down trust into its constituent parts allows us to pinpoint both the sources that generate distrust and the opportunities to (re)gain consumers’ confidence.
Benevolence translates to having the customers’ interest and wellbeing at heart – and not just in a declarative manner. It shines in everything from language to availability to openness to feedback – and acting on it.
Integrity is not just fairness around terms and conditions, but also how equally a bank treats its customers and how honest its employees are.
Competence is what kind of products and services a bank builds and launches, how it supports consumers with their decision-making, but also how well it deals with complaints.
Shared values is about how a bank does things which is just as important as what it does (its ability to launch products and services attuned to what customers need). The way financial organizations “walk the talk” is something consumers observe – even unconsciously. When the time comes to make the decision to buy, all that pool of information will weigh heavily.
Transparency is not just showing consumers who’s doing the work behind the scenes. It’s actually the commitment to openly disclose – and discuss – information about costs, risks, and benefits with customers. Whether it’s telling them about an investment opportunity or briefing them on a poorly performing asset, keeping them in the know about their financial outcomes and security is an essential trust-building factor.
Being competent is not enough to be trusted. Financial products and services that don’t share the customer’s values will come across as tone deaf.
Having shared values is not sufficient either. Without the products, services, and processes to back up those values, they’ll come across as empty promises.
These factors are interdependent and banks must address them all if they are to reap the compound benefits of cultivating and upholding trust in the long term.
One more thing before we move to the nuts and bolts: a bank’s trustworthiness is influenced by the level of trust in the system. So if more banks lose their customers’ trust, even the ones who actively build it will be hurt. Even decaying trust in national or international banking systems affects consumers’ perception.
Luckily, the 2020 Edelman Trust Barometer Spring Update shows that trust in financial institutions has never been stronger in the past decade than it is now. However, even the report mentions the unavoidable question: is this a “Sustainable rise or trust bubble?”.
How to increase trust – the meaningful, long-lasting way
Becoming attuned with the culture
“Risk is not evaluated in a vacuum. It depends on our current context and situation. Whatever we currently experience and are used to is called our ‘adaptation level” – Tim Ash – Unleash Your Primal Brain
Aligning with cultural shifts and societal transformations is essential for a bank to be trusted.
Here’s what this alignment can look like for savvy financial service providers looking to grow sustainably:
- catering to the mass affluent market’s specific needs
- providing financial products with self-service options that are mindful of customers’ time
- engaging in practical actions to address society’s needs for financial literacy (alerts, educational nuggets, saving nudges, budgeting, etc.)
- simple financial products with transparent, lower pricing, delivered through direct means or digital channels
- helping customers find the best fit financial solution even if not offered by that institution itself, but providing it by aggregating third-party services
- accessible, performing wealth management products and services through seamless accumulation and decumulation solutions, and the list can go on.
Consumers are asking for all of this and more from their financial service providers!
Using tech to provide better outcomes – both above and below the surface
Our work at additiv is highly focused on helping banks realize at least five essential achievements:
- Remove friction by providing smooth, quick onboarding flows, financial products with self-service options, and mindful integrations with their favorite apps
- Eliminate surprises by real-time overviews of their asset’s performance, supported by expert advice and guidance
- Add transparency through easy to grasp terms and conditions, and focused, need-based communication
- Educate through info nuggets and nudges personalized to the customers’ needs and financial posture
- Aggregate by allowing them to easily integrate third party data and services to enrich their offerings and supply a wider range of choices to their customers.
Consumers want to know that banks can reliably protect their accounts from fraud. They want to be able to authenticate through chatbots. They want mobile apps that enable them to schedule payments, block a lost/stolen credit card, monitor their expenses, and seamlessly save money, among others.
There are plenty of ways financial organizations can cater to their customers’ needs and enable them to realize their financial wellbeing potential. At additiv, we work across the board with banks to help them to support trust in their organization with concrete actions.
We also help financial actors use data mindfully and avoid angering customers with poorly targeted offers.
Below the line, the entire additiv team enables banks to (re)design backend workflows and processes so they can actually do all these things for their customers and more!
Reshaping business models under systems of intelligence
Consumers see a strong signal of trust in those financial service providers that integrate best-of-breed functions to reduce friction and lower costs.
But integrating features and products won’t be enough. Banks also need the ability to connect customers with the right services at the right time.
Digitization is not just changing which financial services customers choose, but also how they consume them.
“In the case of banking, the first phase of digitization was about dematerialization— removing the physical stuff like cards and cash — but the next phase will be seamlessly integrating banking with the rest of our lives, making it all but invisible.
Bank proprietary channels — web portals, apps, chatbots — will give way to third-party channels like WhatsApp, WeChat or whatever comes next. And, like technology providers, banks will have to provide increasingly higher levels of value-add if they are to keep their customers.” – Michael Stemmle, CEO additiv
Trust and ecosystem models
At the heart of the digital business model change is the acknowledgement that:
- the consumer is in charge
- the consumer has more choice
- the consumer is connected.
In consequence, banks need to work harder to retain their customers by helping them achieve better outcomes, as outlined before. Beyond that, financial actors also have to open themselves up to ecosystems so they can provide additional value to consumers by connecting consumers with consumers, other companies, and even by merging disparate data sets to draw more insight.
The challenge for them is they have to do so without losing trust. For not only does the customer have more choice, but a connected customer also has more voice.
The good news, as the graph above shows, is that the banks have the edge – at least for now. They garner the most trust, which puts them in a position to lead as financial services becomes more digitized. In particular, their alignment with customer interests (as opposed to platforms like Facebook and Google which make their money from advertisers) puts them at advantage.
However, the less good news is the same factors that instilled trust before might not work the same in the future. Locking down customer data, for example, won’t help. And so changing the culture is highly important in addition to technology change.
“The point is that when all of the pieces are unbundled, you need an aggregator of trust to stand in the middle. The bank is an aggregator of trust – an aggregator of products and services from a trustworthy source.” – Saurabh Narain, chief executive of the National Community Investment Fund – The Good Bank
Tangible action consumers can participate in
Trust is also tied to sustainability comprising environmental, social, and governmental factors.
Consumers trust banking that supports a safe place to live a healthy life. Giving them access to ESG (Environmental, Social and Governance) investment options will help them not only build more confidence in their bank but also benefit from positive returns and long-term impact on society and the environment.
Banks clients increasingly want to solve real problems and back organizations that do the same. This also includes the shared values trust factor.
With consumers a key stakeholder in their future survival and growth, banks have a big promise to live up to – one that’s constantly redefined by the changing nature of society.
Trust keeps the world running
We need trust to function in society as hypersocial animals.
Banks that prioritize it as they do growth and profitability can design a self-reinforcing virtuous cycle because trustworthiness underpins growth and profitability.
The good news is it’s never been easier to build trust with an omnichannel approach.
- from towering buildings to user-friendly apps
- from complex information to comprehensible conditions
- from pushing products into the market to building them with customers willing to share their data
is both an incredible opportunity and a source of added responsibility.
Consumers already expect banks to protect their money and data, but that’s just the bottom line. The challenge for financial service providers is to use technology, data, and cultural shifts and to design win-win propositions that benefit both themselves and their customers.