So how did the UK banks get to this position? What can the industry do to rebuild customer trust? And what is already being done?
Prior to the financial crisis, the UK banking industry was seen as the catalyst for UK economic performance. A strong set of banks usually meant a strong UK economy, and banks were the catalyst behind growth, because it is through their lending and investments that businesses can pursue new plans, new opportunities and deliver returns. However, as many now know, the ingredients of the crisis were long in the making and without mainstream society really noticing, the banking industry's lending and investments had become inherently riskier.
I have taken an interest in customer experiences in banking, and specifically the subject of trust in banking. Going back twenty years, if someone told you they were a banker, you would generally associate that person as working in a profession that was highly respected by society and the media. The aftershock of the financial crisis drastically changed that perception. Now saying you're a banker often gets a groan from new acquaintances, and the trend of bank bashing in the media also continues to this day.
The emerging risk was exacerbated by the permeation of aggressive sales cultures supported by perceptions of low risk, weaknesses in established economic theories, inadequate capital regulation, and the rapid expansion of a number of UK banks through acquisitions, who wanted to compete with the US, European and other global banks. In the years running up to the crisis, the inherent and increasing risk was called out by several leading economists.
Furthermore, in the months and years following the crisis, the revelation that the crisis was largely the industry's own making, had the serious impact on consumers and businesses that we live with today, as illustrated in films such as Inside Job, Margin Call and The Big Short.
A perceived lack of trust in an industry is not a new threat though; as a kid growing up I remember jokes about estate agents, used car salesmen or double glazing salesmen to name just a few. Undoubtedly there are professionals in each of these respective domains that are trustworthy, but breaking the perception of distrust is hard, especially with the precipitation of caveat emptor within an industry.
We are all brought up on the idea that the buyer is the one who must be cautious. When powered by today's social media meltdowns (a.k.a. breaking-the-Internet), such perceptions become posted, read, replied, retweeted, contested and posted again. With each iteration, people's perceptions generally become strengthened and reinforced, rather than informed. This raises interesting questions; how much do our own preconceptions shape our view of trust? Do we still use trust as a currency to assess authenticity and credibility of another person's view?
It is helpful to evaluate these ideas from the perspective of other industries, and draw out the transferable lessons for banking. Three other industries in particular have faced issues of trust; academia, automotive and energy.
In academic life plagiarism is considered to be the utmost betrayal of an academic's trust, and institutions have built extensive control frameworks for students and assessors alike that are designed to discourage reuse without reference. Building a credible view demands reasoned argument, insight, evidence and testing. Plus in time, with continued high standards of work and dialogue, you can build greater trust in your opinion. The lesson from this industry therefore is that a patient, progressive application of self is often needed in order to build up that trust.
In the automotive sector building and maintaining trust in the industry is a constant strive for parts reliability, customer service and limitation of reputational impact. At any given moment, there is usually a product recall pending for one automotive manufacturer or another. Each of these recalls has the potential to erode trust and we have all seen the impact of an infamous device on the VW group’s reputation for trust. However, what the automotive industry can evidence to us in the banking industry is that a well-handled issue, backed by accurate root cause analysis, rectification and prevention, can be the very thing that starts the rebuild of trust.
In energy, the 'Big 6' energy firms have had as hard a time as the banks in terms of media coverage, public concern and regulatory scrutiny (as seen in this articles in The Daily Telegraph and BBC ). Much of this attention has focused on their pricing and billing processes, and this in turn sparked pressure to open up the competitive market. Like the mainstream UK banks, the Big 6 are under more competitive threat from new entrants now, but it is still a tough industry to thrive in due to the investment entry cost and the high scrutiny applied.
New entrants have entered on the basis of greater use of digital technologies which lower their cost base and this has helped them gain a foothold in the market. Filling out meter readings via your app, and arranging your new tariffs via your tablet makes life easier for customers because access to insight is matched to the opportune moments in their busy day-to-day activities. This is the lesson from the energy industry; focus on your customers, align to their needs and build on-demand services around them.
Banking recognises these points; UK banking CEOs have consistently stated that the path to rebuilding their customers' trust is a long one, but how can a bank go about this? António Horta-Osório, CEO at Lloyds Banking Group, summarised his strategy:
"Supporting communities, helping the UK economy, helping people by providing loans for houses, supporting SMEs, encouraging them to entrust us with their deposits – all this is about trust and part of our Helping Britain Prosper Plan".
This quote highlights the relationships and experiences that banks have with their customers, and signposts the criticality of getting those experiences right if the industry is to gain greater trust. The will is already there and is echoed in the banks’ results statements for example, but customers will judge their bank on individual experiences and actions. This is the modern-day quest in the industry because even though the financial crisis happened over 7 years ago, trust in banks and large companies is still at an all-time low.
In my opinion, to be successful in this quest, there are four strategic shifts that UK banks need to initiate or accelerate in order to rebuild trust over the next decade:
- Focus on the customer’s journey and day-to-day interactions; tailor them appropriately so that with each experience, customer trust incrementally increases.
- Be there for a customer when they need a bank's support most; it is often the best way to improve perceptions.
- Continue the drive for digital experiences and on-demand services.
- Continue to strengthen both conduct risk and investment risk practices (i.e. keep the world less risky)
The clear message above is that the customer has to be at the heart of the rebuild. It is the only way for banks to recover the reputation they lost in the financial crisis.