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Why Is My Banker Smiling?

The Erosion of Customer Trust in the Banking Industry

Banks and other financial institutions are facing highly challenging times. Several independent market and demographic trends are working to undermine the competitive viability of business-as-usual strategies. Coming out of the worst recession since the Great Depression, customer trust of financial institutions remains at an all-time low.

New sources of competition for traditional banking activities are appearing at the same time as customer brand loyalty is drastically eroding. All this is occurring at a time when regulatory uncertainties and the long-lingering effects of a brutal recession still cast a dark shadow on the economic near-term future.

Forward-looking executives see this challenge as an opportunity that can deliver handsome returns, strengthen brand loyalty, and increase the frequency and dollar amounts of customer purchases.

Trends Driving Customer Behavior

Most of the industry’s customer segments have no distinct brand loyalty associated with their bank or financial institution because they don’t perceive significant differentiation between financial institutions. The loyalty they do possess is formed more by the inconvenience of switching accounts and services than by any clearly favorable perception of their institution’s brand. Many customers report feeling they are held hostage by their financial services institution; since they perceive all to be the same, they might as well stay with their current institution. With non-traditional organizations—like Google, Apple, and PayPal—starting to offer financial services, customers will have new and exciting venues to consider for their financial needs. It isn’t hard to imagine that banks may start to lose customers to these new sources of competition. It’s time to wipe the proverbial smile off the industry. The customers are now in charge and are willing to jump from their current financial institution to another.

Technology will continue to evolve and provide new ways for customers to interact with their institutions, but the winning organizations know the power to build customer trust starts with people who interact with the customers.

Financial Institution Executives’ Concerns

Executives are concerned about sustaining performance when market conditions are so uncertain. They know they need to:

  • Improve customer retention
  • Grow their financial partnership with customers
  • Offer more products to customers
  • Offer more services to customers
  • Offer more convenience
  • Integrate the experience of all channels

Financial institution executives are concerned that as their customer segments diverge, the consistency of the brand suffers across channels.

Forward-thinking executives understand and embrace the challenges faced by their institutions because they see huge opportunities available to those that can focus on building a consistent brand experience that:

  • Reverses the current erosion of customer trust
  • Attracts new customers and retains current customers
  • Deepens the customer relationship by offering additional products and services across all channels
  • Integrates customers’ experiences of all channels

As more and more people use technology to interact with their financial institutions, the need for a consistent experience across all channels is critical. Banks and institutions that truly provide a differentiated experience know that their people are the key to providing an experience that’s second-to-none. Technology will continue to evolve and provide new ways for customers to interact with their institutions, but the winning organizations know the power to build customer trust starts with people who interact with the customers.

Build Customer Trust

In order to attract new customers and retain existing customers, institutions need to address the widespread erosion of customer trust. Those that can reverse this trend by aligning each and every interaction across the customer experience to consistently increase customers’ trust hold a reliable source of competitive advantage.

Two things are necessary to build a competitive advantage from the customer experience. First, leadership must provide vision and commitment. And second, the organization must develop and deploy a core competency in establishing and increasing customer trust in each channel of customer interaction.

Creating Trust

Even while customers are using the services of one bank, they are constantly reevaluating their current relationships through the collection of various input that forms their impressions and sets their expectations. They continue forming both logical and emotional judgments that reflect how attracted they are to any given brand and whether or not they’ll continue using their current institution. Their expectations are not just built on your marketing or advertising. They are created based on their service experiences across all brands and all industries. Financial organizations must realize they are no longer just competing against the branch across the street but with everywhere their customers shop.

70% of the buying experience is based on how the customer ‘feels they are being treated.’

— McKinsey & Company