Bank bashing is now a national sport in Australia. Winning back consumer trust will be a hard, but essential part of staying relevant in a tech-enabled future financial services market. And it begins with ensuring that what banks say and what they do are in alignment.
Australia's big four banks have got a problem and it’s not what most people think. There is a crisis of confidence in the banks among consumers, who believe record profits, the raising of lending rates out of step with the Reserve Bank and a continued spate of highly publicised unethical practices illustrate there is a breach in the social contract with the Australian public. However the facts tell another story, painting a much more balanced picture of the banks than we have come to expect. Unfortunately for the banks this issue is more than a crisis of confidence, it’s a crisis of perception and if left unchecked it has the potential to accelerate the coming wave of FinTech disruptors.
A short time ago our team at FromHereOn partnered with Melbourne agency DPR&Co to launch Brandtrust – The Brand Authenticity Index. The index has been formed in recognition of the discord in brand promise and customer experience felt by many consumers, which is now a hot topic in the boardrooms of Australia’s largest listed corporations. The inaugural survey, released yesterday, focused on Australia’s ‘Big Four’ banks. This comes as banking culture is being placed in the spotlight as a key election issue.
Among the key findings of the Brandtrust brand authenticity index:
- 66% of respondents say record profits and banks raising lending rates out of step with the Reserve Bank show banks have lost touch with consumers;
- 61% say recent news about some banks’ unethical financial planning practices have eroded their trust in banks;
Should We Care About Record Profits?
Banks are making more money than pre-GFC days but should customers feel exploited? While the absolute value of big four profits has been maintained at around $25 billion pa since 2010, up from pre-GFC levels of around $16 billion pa¹, this is a result of increased market share. Relaxed government regulation enabled CBA and Westpac to acquire Bankwest and St George which together accounted for 11 percent² of mortgages and SME loans at the time of their acquisition. The government’s guarantee on deposits saw a flight of depositors from other lenders to the big four, reducing costs of capital relative to the rest of the market. Between September 2007 and March 2014 the big four’s market share increased from 65.4 per cent to 78.5 per cent. This newfound market penetration has confused the ordinary man on the street into thinking the increased profits equate to exploitation, when in fact bank lending fee income, non-deposit fee income and deposit fee income as a percentage of assets have all fallen since 2000³. Fees paid by households have declined in absolute terms since 2010, with that decline largely a result of decreases in account servicing fees and transaction fees.
Bad Press about Banking Scandals
There’s no doubt the recent financial planning scandals have undermined the trust of the Australian public towards the big banks. According to the Brandtrust survey the recent negative publicity about unethical financial planning practices has rubbed off on all the big banks with three in five respondents (61%) saying it has eroded their trust. Male respondents (64%) and respondents age 55 and over (72%) were most likely to have had their trust impacted most by these reports. This type of negative sentiment is easily ignited as consumers reflect on the role banks played in the lead up to the GFC.
A Matter of Perception
Anyone close to one of the big four will know there are substantial efforts being made to become customer centric. CBA has led the way for a decade, delivering customer-led transformation, which is now paying dividends in their Net Promotor Scores (NPS). Go into any branch or use any of the digital channels and on the whole customers are satisfied. However this information belies the truth about the damage that’s being done to the brand equity of the big four and the potential long term consequences.
Despite their best efforts to improve customer satisfaction there remains a substantial undercurrent of mistrust and cynicism within the Australian community for the role and intention of banks⁴, often referred to as the ‘social contract’. NPS is regarded by many as a narrow and somewhat flawed measure of customer sentiment. For organisations to build trusted relationships with their customers we need to express our motivations clearly and ensure our actions are consistent with our intentions. We need to communicate why we exist, who we are in service of and what our promise is to the people whom we serve. This is where the banks missing the mark. I was heartened to read the AFR story about Ken Henry⁵, Chairman at NAB, who has called on the board to play a more direct role in establishing and redirecting company culture. He said, "I want to have more discussions with people in the organisation about NAB's culture, about the purpose of the bank...about what it is that motivates them and about their values.” Spot on Ken.
The Risk and the Opportunity
Unfortunately for banks there is a good story to tell that will struggle to get airplay in the media because bank bashing is now an Australian media and political bloodsport, with the Labour Party now teeing banking culture and a proposed royal commission up as an election wedge. However Australia has fared well during the GFC because of effective regulation and a timely response to secure deposits. Add to this the consolidation of lenders shortly after and the big four prospered. Since the GFC Australia has been the envy of other financial markets overseas, customer satisfaction has improved, net margins on lending have decreased, fees paid by households have declined in absolute terms⁶ and the economy has prospered. The Australian public should be proud of the resilience and performance of our financial system. While this is a good news story worth telling their brand equity is being undermined, largely due to a succession of scandals. The opportunity remains for the first big four bank to take concerted focus on a new and highly visible customer charter, one that is human-centred, authentic and transparently enacted across the board.
FromHereOn is currently working with a number of international clients on customer charter, purpose and organisational alignment, to discuss possibilities - contact us here