A matter of trust

Andrew Cornell

Past Managing Editor, bluenotes

It’s long been held that while customers may not necessarily like banks they do trust them. Banks and other financial institutions are often in the firing line in times of economic hardship and, as we saw in Australia with the Royal Commission, they don’t always do themselves favours.

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And the industry is an expedient and easy target for scapegoating as few people have natural sympathy for large financial institutions or think they get a raw deal.

"As the economy becomes increasingly digital… strong data protection policies will become more important to shield consumers from harm.” – The Bank for International Settlements

Yet the enduring, underlying trust in the financial security of these institutions and their protection of customer privacy remains. And again, that is particularly evident in times of financial stress when the major financial institutions always seem to gain market share – even if their community reputation is taking a battering.

Moreover, this repository of trust is persisting into the digital age as more and more varied institutions vie to provide banking services to individuals and business.

While the security of personal and organisational finances will not disappear as a fundamental desire for customers, the growing shift to a digital world, and with the rich, opaque reserves of personal data underlying new services, it is that trust in data security which may well prove the opportunity of the future.

Tracking trust

The Bank for International Settlements (BIS), the global standard setter for the financial services industry and reserve banks, recently published a survey based on US research into attitudes to privacy.

The survey found US households say they are more likely to trust traditional financial institutions than government agencies or fintechs to safeguard their personal data. Moreover, they have far less trust in big techs.

There are disparities across the population - respondents from racial minorities in the US have less trust in financial institutions, younger respondents trust fintechs relatively more.

But as we move into a more digital world and the concept of open banking and “ecosystems” – where multiple companies cooperate to fulfil customer preferences in a seamless way – the survey highlights some fundamental challenges. Some exacerbated by the COVID-19 pandemic.

“A quarter of respondents say COVID-19 made them less willing to share data,” the BIS found. “In this group, nearly half became less willing to share with big techs. Concerns centered on identity theft and abuse of data.”

The BIS draws the obvious conclusion: “As the economy becomes increasingly digital, and new players expand further into financial services, strong data protection policies will become more important to shield consumers from these harms.” Trust will be paramount.

Measuring trust

These findings are echoed, if not exactly replicated, globally. In Australia, a survey into attitudes to privacy prepared for the Office of the Australian Information Commissioner by Lonergan Research found the banking industry again ranked highly in terms of trust.

If the data are shaped into the form of a net promoter score (NPS) – a rigorous measure of active satisfaction where only the highest satisfaction scores are counted and negative and neutral scores are subtracted – banks were on a par with government departments (which obviously collect a lot of sensitive data) and well above other institutions.

On a rough NPS measure, banks would be 22 while loyalty programs would be -20, internet search would be -39 and social media would be -58.

According to the report levels of trust in personal information handling vary substantially by organisation type.

“Australians consider the social media industry the most untrustworthy in how they protect or use their personal information (70 per cent consider this industry untrustworthy), followed by search engines (55 per cent untrustworthy) and apps (54 per cent untrustworthy),” the report said.

But the data tell a deeper story of the challenge on trust. Financial institutions actually enjoyed an increase in trust in the wake of the 2008 Global Financial Crisis (GFC) as the industry and government combined to protect taxpayers and customers from the astronomic costs of system and institution failure seen in other countries.

However, since then overall trust across the categories in Australia has been in steady decline.

That is obviously a broader concern. But it also highlights one of the battle fields for a digital world: it won’t be enough to just offer tech wizardry and clever products. Customers need to be able to trust the institution.

History tells us businesses with short term perspectives on their reputation and social responsibility have short term histories. They may flourish briefly by exploiting customers – for example, in banking, by relying on customers making mistakes to support penalty fee income – but that isn’t sustainable.

The emerging discipline of stakeholder capitalism – which actually isn’t that new at all and has long been valued by successful investors – emphasises the importance of trust as an asset.

In a fascinating discussion on The McKinsey Podcast, McKinsey senior partner Dame Vivian Hunt and former Unilever CEO Paul Polman, now co-founder and co-chair of IMAGINE, discussed stakeholder capitalism.

Polman noted: “Competing on trust and responsibility are probably some of the most important things that (business) has to do, as well as creating this deeper relationship with all of its stakeholders … built on that trust”.

“Today, 85 per cent of a company’s value is in intangibles or goodwill or, in fact, it is trust or reputation,” Polman says. “The value of a company now is created in trust and reputation. That means ‘do what you say, say what you do’.”

“That means working in a much more transparent environment. That also means being part of these broader partnerships or bigger transformations that make you a net-positive company.”

According to Hunt, companies with purpose, values and higher levels of trust – those values of stakeholder capitalism - outperform.

“When we look at our long-term data sets, across countries, for value creation, companies that have performed better, have had multiple goals, are more holistic in those outcomes, they’re broader in terms of the metrics that they measure,” she says.

“So whether you look at the near-term recent examples or you look over the longer five, 10, 15-year cycle of value creation, companies that have a broader diversity of goals and objectives and have fulfilled those in sustainable ways do find higher returns.”

Banks have long handled the most sensitive financial data, they have the opportunity to extend that competitive advantage and reputation into the realm of personal data. If they can manage that, and further develop ecosystems and technology which satisfy customer preferences, they will have an inherent advantage over new competition.

Andrew Cornell is Managing Editor of bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.