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Banking Customers More and More Mistrustful of Financial Institutions

Consumer mistrust likely to shape future competitive landscape in banking.

The growing ranks of banking customers are becoming more and more mistrustful of their financial institutions, according to IBM (Armonk, N.Y.). In a new twist on the issue, the trend is increasing in younger generations of consumers, IBM says, threatening banks' long-established position as trusted financial advisers.

Consumer mistrust of banks is a familiar topic. But typically the reports are from the standpoint of the so-called "unbanked" or "underbanked" (see "Underbanked Segment Welcomes Banking Relationships)." Recent immigrants not familiar with their new country's established banking system or unfamiliar with the language, or much older people who can still recall the Great Depression, are recognized as often being mistrustful of established financial institutions. The trend identified by IBM, however, has less to do with language or preconceived emotions and much more to do with the performance of the banks themselves.

Concurrently, a new survey from Unisys (Blue Bell, Pa.) found that 71 percent of U.K. consumers do not trust their banks. The attributes most cited in the survey for eroding trust are disrespectful attitudes, poor privacy, weak IT (such as Web sites), poor corporate governance and a lack of investment in the local community.

"The trust of the customers is in jeopardy if banks don't respond better," comments Elton Birden, VP, U.K. financial services, Unisys. "Banks must look beyond firewalls and data breaches and understand that customers consider everything when deciding where to place their trust."

The Customer in Control

It's not just security breaches that are causing consumers to lose faith in their financial institutions. Consumers in general are more demanding, and this attitude spills over into the relationships they have with their banks, IBM suggests in its report, "The Paradox of Banking 2015." By 2015, IBM says, "better-informed, more-discerning customers will redefine the rules of the game by demanding greater advocacy and control in their banking relationships." Because consumers are becoming more hands-on, they will require increased transparency from their financial institutions, explains Sunny Banerjea, global banking leader, IBM Institute for Business Value, and one of the study's authors.

Although the report came out in 2005, Banerjea says that he still predicts the same trends will shape the industry. "The shift in power from the financial institution to individual client is continuing, and technology is accelerating that trend," he relates.

As part of the trend, IBM adds, by 2015 consumers no longer will tolerate the fine print associated with many financial products and services. Additionally, they will require banks to simplify their fee structures and implement processes to help customers avoid unnecessary fees.

Banerjea says that the banks that will come out on top are those that are perceived as customer advocates -- those that obviously do what is best for the customer and not what is best for the bank. "If you are an advocate, you are more likely to have customers with multiple products," he says.

In addition to data and Web security solutions, technologies that will help banks gain back and retain the trust of their customers include solutions that allow greater personalization of products, enabling banks to use customer information in real time to "devise differentiating banking experiences and solutions," according to the IBM report.

Beyond the more hands-on consumer, the other "megatrend" that heightens the focus on customer trust in 2015 is intensifying competition, according to Banerjea. As smaller, nontraditional, nonbank niche players emerge, the battle to win customers' trust will only intensify. IBM's study points to the fact that midtier and community banks will experience a "middle squeeze" by 2015.

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