Trust and loyalty in financial services are shifting

Trust and loyalty are banking’s most valuable currencies. They lie at the heart of the customer relationship. But the stock of trust and loyalty has been impacted by nontraditional providers in the past year, according to a survey of consumers for the BAI 2021 Banking Outlook.

Asked in 2019 to rank which organizations they trust most to handle their financial products and services, consumers overwhelmingly (83 percent) cited their primary bank or credit union. But a year later, that percentage dropped to only 52 percent relative to nontraditional providers.

Any number of factors are impacting faith and commitment in major societal institutions like the nation’s financial services organizations: the global pandemic, social unrest and a careening economy. The industry has been roiled by cyberattacks, data breaches and an accelerated shift to digital channels, heightening consumers’ fears about fraud.

Consumers, who may no longer feel the same level of loyalty in their primary financial services organization, can choose from a growing roster of alternative players eager to manage or move their money. Direct banks with their branchless business model and leading-edge technology, have made inroads. And tech players, be they giants like Apple and Amazon or tiny fintech startups, offer a new breed of financial services options.

In our most recent BAI Banking Outlook research, trust in PayPal as a financial services provider saw the largest increase—from 5 percent in 2019 to 19 percent in 2020. The famously convenient online payment system ranks second to the primary bank or credit union. With consumers shopping more online from home since the pandemic, PayPal is at the center of many of those payments or transactions. Amazon and Apple each weighed in at 7 percent in the research.

Still, despite the ground that nontraditional players have gained, three-quarters of consumers said their primary bank or credit union understands their financial services needs. But that sentiment does not guarantee loyalty, because in the next breath respondents said they are essentially an app away from switching financial services organizations. In 2019, 41 percent of consumers said they would defect for a better mobile app or better digital capabilities; in 2020, that percentage rose to 54 percent.

The willingness to switch banks for the latest tech tool was most dramatic among America’s largest generation, the millennials. In last year’s BAI Banking Outlook research, slightly less than half (47 percent) of those born between 1981 and 1996 said they would switch for a better app. In this year’s survey, three-quarters of them would make the switch. So much for lifetime loyalty.

The challenge for the nontraditional players is their invisibility. How can you trust what you can’t see? The challenger banks have no bricks and mortar like the traditional banks. There are no friendly faces to greet them when they walk through the doors of a branch. Relationships are shallower. Banks and credit unions have an inherent trust advantage they should never take for granted.

As financial services leaders prepare for 2021, maintaining and increasing trust and loyalty must be at the top of the list. Trust and loyalty are valuable resources that should be carefully managed especially in the face of powerful external forces like a once-in-a-century public health crisis or social unrest.

Here are five recommendations for the year ahead:

» Create a more frictionless customer digital experience. The tech-savvy nontraditional players have mastered this piece of the customer journey. As a result, they have been growing in popularity, especially among young consumers. Eighty-four percent of financial services leaders said they have not learned any lessons from fintechs that they plan to implement in 2021. They should rethink that. They can start by reverse engineering some of the nontraditionals’ most appealing features: clear, easy-to-use apps; faster payments; and quicker money transfers.

» Enhance protection of customer data. As customers share more confidential data online with their bank or credit union, fears grow that their information will be compromised. The concern is particularly acute among baby boomers, who have the most to lose. Digital banking’s potential won’t be fully realized until customers trust electronic channels. Employee and customer training on best data protection practices is essential.

» Make smarter use of customer data. Nothing irritates customers like irrelevant product and service offers. Boomers have little interest in college savings programs, and Generation Z customers are unmoved by annuities. Thoughtful, targeted product and service offers help build trust among customers. They are assured that their financial services provider understands their needs and is operating with their best interests in mind.

» Be more transparent. For many customers, financial services is a mysterious black box. Gen Z, the newest generation to banking, is often mystified by practices that are second nature to older customers. Some boomers are baffled by digital channels that are all new to them. Provide more guidance by leveraging one of traditional banking’s customer service strengths—faceto-face interactions in the branch.

» Accelerate customer service. If Amazon can deliver packages within the same day of the order, financial services customers should not have to wait 48 hours to get a problem resolved. Agile, responsive 24/7 service will carry the day, any time of the day.

Financial services leaders that put their customers at the center of everything they do with reliable, responsive service; scrupulous protection of their personal data; and smart digital tools will reap the rewards of a long-term relationship.

Karl Dahlgren is a managing director at BAI.

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