As the global economy continues to falter – with recent events denting confidence in both financial institutions and governments – are banks doing enough to restore consumer confidence and re-establish a rapport with their customers? Mark Jones discusses the threats and identifies potential solutions
The banking community’s public image has suffered blow after blow since the collapse of the Lehman Brothers investment bank in September 2008. Whether fuelled by political anger or personal economic suffering, many people have felt badly let down by the financial world in the past several years.
In February, UK tabloid The Daily Mail ran a story headlined: “Proof banks treat customers with contempt”. The newspaper’s readers hardly rose to object. To say public confidence in the banking industry is at a low point would be one of the great understatements of the year.
Recent events both in Europe and the US have severely dented any green shoots of recovery seen emerging since the start of 2011, with many fearing the global economy will slip back into recession.
Fears continue around the stability and future of the eurozone, in addition to the lack of political cohesiveness currently seen in the US political system and its ability to manage its economy effectively.The recent downgrade of the US credit rating came as no surprise to many onlookers, and many believe it may take some time for its rating to be restored.
In the UK, banking shares have again come under pressure as market and regulatory concerns threatened to derail the drive to create more competition in the UK banking market; this, combined with austerity cuts being implemented by the UK government, is fuelling customers’ further discontent with the banking sector.
This discontent is reflected in consumers’ feelings towards their financial services provider and resulting reviews of their products and services. Many customers are now looking for, and expect, increased customer service, support and an improved range of products.If disappointed, many of these customers will look to change providers. What little confidence and loyalty that remains after the credit crisis could be abandoned in the pursuit of increased and immediate benefits from another provider.
It is safe to say that many customers have remained loyal to their bank, particularly in the case of checking accounts, more due to apathy than any deep-rooted sense of loyalty to brand or organisation. In light of recent events, this would make them more susceptible to change.
A consumer’s ability to switch more price sensitive products (such as credit cards, loans and mortgages) may have been somewhat restricted by a general retraction in credit policy, but competition in terms of checking accounts remains fierce with many attractive offers available to consumers.Those that are able and willing to act are actively looking to spot a better opportunity with a different bank, credit card company or financial service provider.
Globally, research proves the trend is already underway. The 2011 US Retail Bank New Account Study from marketing information services company JD Power and Associates, for example, shows 8.7% of customers had switched their primary banking institution in the past year (up from 7.7% in the 2010 study). The average customer considered 1.9 banks in this ‘shopping’ process, up from 1.6 in 2010.
An already-crowded market is seeing new entrants arrive in the financial services arena, offering attractive introductory deals to entice customers away from established providers and, with further entrants expected to follow, new challenges are on the horizon.
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