Trust is vital to all businesses, not just banks. Repeated studies show how trust feeds directly through to the bottom line: a firm that is trusted will find people buy more of its products, will pay more for them, and will go out on a limb to recommend it to friends and colleagues. Conversely, if your business is distrusted, people won’t do business with you, won’t buy your products and many will actively criticise you to friends and disparage you online.
We’ve studied trust at Edelman for 15 years. Our annual Trust Barometer measures trust levels across more than 25 countries with tens of thousands of respondents. From it, we know that the banks, particularly in industrialised countries, still have big trust problems. They are the least trusted sector in the UK – less than a third of people trust banks to do the right thing.
Earlier today, I took part in a panel debate at the Institute of Directors’ annual convention, on how to restore trust in banks. Many of the people who attended the event represented Small and Medium-sized Enterprises (SMEs), who are the backbone to any economy and vital in ensuring its wellbeing. In order to give a clearer picture of what such businesses thought about banks, we commissioned some fresh research and spoke to over 350 financial decision makers, in businesses ranging from fewer than 10 to up to 250 employees.
The first thing we found was that SMEs trust banks more than the general public – 58% trust traditional banks to do the right thing. But there is a divergence when it comes to SMEs’ choice of traditional banks as sources of funding. Although traditional banks still enjoy an advantage over other sources of finance among SMEs, the potential large businesses of tomorrow are still sceptical.
Worse, the majority of SMEs think that the traditional banks are likely to be hit by a scandal in the next five years, suggesting a lack of belief that the sector has really got its house in order.
This presumably should be music to the ears of alternative finance and the growing number of Financial Technology (FinTech) start-ups, which should also benefit from the fact that the technology sector has for many years enjoyed the highest scoring levels of trust in our surveys.
But there is an awareness issue – more than eight out of 10 SMEs told us they were not aware of the FinTech sector at all. In general, it would appear they aren’t really in the consideration set – certainly not yet.
Where there is awareness, there is an anxiety that the sector is under regulated and that crowd funders and peer-to-peer networks will be rocked by a major crisis.
There is another big call out from the data. We have identified that there is a threat of substitution to traditional banks and start-ups from other more trusted brands.
We asked SMEs which existing digital brands they would trust to offer financial services. A majority of SMEs would trust large non-financial services firms such as Amazon and others to deliver banking services. The medium-sized businesses were the most overwhelmingly positive among our respondents.
So the risk is that traditional banks get squeezed by lighter-regulated, nimble start-ups, while the alternative finance sector is threatened by digital super brands.
So what’s the advice?
From my experience, and having spoken to a number of senior figures in banking, I would suggest the traditional banks do three things to rebuild trust:
First they need to organise themselves better as an industry – the banks have not done a particularly good job at representing banking itself as a sector. The sum of the parts should be bigger, but it isn’t. The industry needs to get out there and explain what it actually does and why it is a critical service.
Second, it should prioritise communicating its ‘purpose’ – by that I mean the role the banks play in society. The tone at the top is critical in terms of setting appropriate values and behaviours through what are large and complex organisations. This is important given the banks are dealing with a residual perception that scandal isn’t far away.
Finally, banks need to build trust with their customers – whatever they are doing now needs to be multiplied several times over.
So, what in turn about FinTech companies? Again, there are three things they should do.
They need to invest in their brand. Start-ups are capturing early adopters and creating new markets, but if they don’t build brand recognition, big branded digital businesses could sweep them aside.
Second, communicate with clarity their unique benefit or the need that they are filling. There is growing distrust around innovation for the sake of innovation: they need to articulate clear benefits to customers.
Finally, look at Uber. They were under prepared for the regulatory issues and push back they received. FinTech firms should make friends and build relationships while the sun is shining.
The message to both banks and FinTech is act now: there are some immediate practical steps that you can take to build trust. Without banks, we wouldn’t have business. It’s time to stop bashing, and start building.