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Trends in Action: Trust in Financial Services.
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By Fardous Rahim July 2012
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 askfs@datamonitor.com. To find out more about Datamonitor Financial Services contact us at: email enquiries@datamonitor.com 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.
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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
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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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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
Consumers want providers to demonstrate traditional values
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
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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,
Recognizable products and services give consumers a sense of trust
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
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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
Consumers expect their providers not to make mistakes
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 feedisclosure 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.
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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
Providers must be seen to be honest
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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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.
Consumers need to be reassured that their money is safe
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.
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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.
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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.
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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.
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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.
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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.
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Get the basics right – Consumers expect everyday services to work promptly and in an error-free manor.
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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 Access this report through your Knowledge Center, or order online from the Datamonitor Research Store for instant access. Knowledge Center subscriber >> Store >>
Rebuilding Trust in Retail Banking This report will be available soon on your Financial Services Knowledge Center and the Datamonitor Research Store. Get in touch with us to find out more at: datamonitor_fs@datamonitor.com.
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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 askfs@datamonitor.com. To find out more about Datamonitor Financial Services contact us at: email datamonitor_fs@datamonitor.com phone +44 207 551 9437 visit our website: http://about.datamonitor.com/sectors/financial.htm Or follow us on Twitter: @DatamonitorFS
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White Paper
Trends in Action: Trust in financial services