Are Bankers Clueless Or Realistic?

Unless you’ve been living under a rock — which I’m not knocking — you’ve probably heard that consumer sentiment regarding banks isn’t particularly favorable these days. Pick your study, it doesn’t matter, the message is the same: People hate banks.

The credit union people jump all over these findings, and consider them self-validation of their customer service superiority. Industry pundits eat up these findings as evidence for why the industry must immediately undergo some transformational change fueled by _______ [fill in the blank with the technology, consulting approach, or book they’re selling].

But what do the bankers think of these findings?

American Banker asked its readers, in an online poll: “What is the long-term effect of big banks’ poor reputation among consumers?”

The problem in evaluating the answers, however, is that American Banker doesn’t show the number of respondents to the question, nor do we have any information about who responded. So, yes, I’m very aware that we might not be talking about a representative or meaningful sample here. But if it is a good sample, then the answers are very interesting:

6%     The banks will have a harder time attracting customers and building revenue

9%     They’ll lose market share to small banks

1%     They must spend more on advertising to rehabilitate their brands

39%  All of the above

44%  None of the above. Consumers always complain about big companies but keep using them

In effect, almost half of the respondents don’t think that poor reputation hurts big banks. The numbers are on their side. In a number of markets, the large banks’ share of deposits has increased from a few years ago. And the Q1 profitability numbers show a return to pre-crisis profitability levels.

But these are just short-term gains, no? In the long-run, a poor reputation can’t possibly be sustainable, right?

It is and isn’t.

The first thing to understand when looking at the poor reputation stats (often reported as low trust) is that people have little trust in “banks, in general” but report much higher levels of trust in their bank.

While there are a number of people who get really poor service from their bank, or feel that they’ve been cheated or shafted, that number is a minority. A much larger percentage of people are forming their opinion of poor reputation or low trust based on what they see in the news: Media reports on how large banks caused the crisis, or the example of how some large bank mistakenly foreclosed on someone’s house.

The second factor to consider is that as long as core banking products are seen as commodities, a poor reputation won’t be harmful to large banks. I don’t know about you, but when I go into a restaurant and pick up the salt shaker, I don’t ask the waiter if it’s Morton’s salt before shaking it on my fries. As a result, people just don’t care enough about their checking account to make a more considered decision. An apathetic customer couldn’t care less about a firm’s reputation.

A third factor at play here is control. When people perceive that they have little control over a situation, they will not think favorably of the party or person who does have control and wields that control. To a certain extent, people feel powerless in dealing with the “big evil” banks, and therefore say they have little trust in them when the researchers ask.

So, let’s ask again: Is having a poor reputation sustainable?

As long as consumers are apathetic about their financial lives and providers, then the answer is YES. This is why credit unions have been — for the most part — unable to move the needle on deposit share. They’re barketing up the wrong tree (I just made that up). Claims and demonstrations of superior customer service and advocacy don’t mean anything to someone who just doesn’t care.

But the numbers in the market mask changes that make a poor reputation unsustainable. More and more people care. The problem for the challengers (credit unions, community banks, upstarts) is that the people who care are predominantly Gen Yers who don’t have a lot of money (at the moment) for deposits and investments, and Gen Xers who aren’t a particularly large segment of the overall consumer base.

Bottom line: The sustainability of poor reputation is declining. Maybe the 44% of respondents who said “none of the above” in the American Banker survey don’t see this.

The important questions to ask about the future is: What can big banks do to improve their reputations? and What can the challengers do to get people to care?

Technology holds the key to the answer to those questions. Technology (I’m thinking of PFM-type tools here) can be at the center of the bank/customer relationship.

I saw a demo yesterday of what I would consider to be one of the best PFM tools I’ve seen. It doesn’t just give the customer a view into accounts and ability to budget. It integrates financial education, it provides peer comparison and analysis, it aggregates rewards program activity, and it enables customer/advisor collaboration.

What does this do for customers? It engages them in their financial lives, and — this is important — it makes them feel like they have more control over their financial lives. To a large extent, I think this is what underlies the hype — oops, I mean interest — in BankSimple.  It’s about giving control — oops, I mean the illusion of control — back to the customer. 

What does this do for banks? A million things. Not the least of which is improving their poor reputation or low trust levels.

If the big banks’ — or any bank’s or credit union’s — response to the Poor Reputation situation is increasing their advertising, or G*d forbid, investing to revamp branches, then they’ll fail to either improve trust or increase share. 


9 thoughts on “Are Bankers Clueless Or Realistic?

  1. Jerome: Thanks for commenting. I can only comment on the airlines from the perspective of a customer. But I think they have something going for them that the big banks don’t: Greater barriers to entry. Getting into banking requires an investment in technology, which, while not insignificant, isn’t on the scale of what an upstart would have to invest to start an airline. In fact, in banking, the regulatory environment is probably a bigger barrier to getting into the industry.

    As a result, the airlines look at their poor reputation/low trust stats, and in their best Alfred E. Neuman voices say “What, me worry?”

  2. Good point, but I think it also has to do with monopolies, which is what the airline system is all about no? Might be less in banking, I don’t know. I am fascinated with the stuff airlines get away with – I can’t think of another such grotesque example 🙂 – I can only hope entities like OpenSkies and Social Flight can succeed, but it’s a very tough gig, not helped by the hub & spoke infrastructure.

  3. Interesting. It is very difficult to reconcile these type of survey results with data. In fact, it appears that banking data contradicts survey results more often than not. In 2010, large banks won 90%+ of the growth in terms of assets and deposits. Large banks control a disproportionate share of banking accounts despite the fact that smaller banks and credit unions account for 99% of the institutions and control more than 50% of the branches.

    It isn’t clear that smaller Banks and Credit Unions are effectively competing; it isn’t clear that larger Banks are very worried about the competition from the smaller participants.

    Smaller Banks and Credit Unions, have thus far, failed to differentiate themselves. As a result, consumers have very few reasons to bank with a small bank rather than the likes of Wells Fargo, BofA, Citi, etc. — and the data supports this.

    The factors you identify speak precisely to this as well. However, I am uncertain that PFM will change the landscape in any meaningful way. If most banks have PFM, then this ceases to be a point of differentiation – it will simply become a feature that most / all banks deploy. Advantage: larger banks.

    Smaller Banks and Credit Unions need to stop copying tactics deployed by the mega-banks and get creative to win market share. So some extent, smaller banks need to stop drinking the cool-aid (eg. surveys on reputation, trust, etc.) and focus on the numbers!

  4. Ron – where did you see that BankSimple PFM Demo? It is accessible to others? I have to do a webinar next week for BAI on technology trends affecting acquisition and retention and would like to learn and reference possibly? Thanks! – mark Z. @BankMarking

  5. Mark: No offense to BankSimple, but the demo I was referring to was NOT BankSimple. It was from an established technology provider in the financial services industry. I don’t think they’re ready to go public with what they’ve got, so I didn’t mention their name. Sorry for creating the impression that it was BankSimple I was referring to (although, I guess BankSimple isn’t complaining).

  6. To answer your headline, I think big Banks are realistic and the question could be reversed as “Are Comm Banks and CU’s clueless or realistic?”. I’m not saying reputation won’t hurt the big banks long-term, but I also think if reputation really became a concern then my money is still on the big banks to get it corrected; and they’ll be the ones who will influence consumers apathetic behavior. Only because while some, not all, Comm Bank/CU’s will invest $ into advertising, or piecemeal their technology… Big Bank is investing in new and better technology.

  7. Lee: Good points. I think I unintentionally covered myself w/ the headline, which only asked if “bankers” were clueless. Didn’t say big vs. little. 🙂 But you make a good point about the CU execs who might be putting too much stock into these reputation numbers.

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