Transparency is Critical for Banks to Earn Customer Trust
Maintaining customer trust is an essential aspect of any financial institution's success — even more so in times of uncertainty. To establish trust, banks, credit unions, and other institutions often turn to marketing, product optimization, and engagement.
However, a key piece of the puzzle, and one that many banks are missing, is transparency. Banks must be able to describe the institution's processes, communicate policy changes, and provide easy access to information for their customers, especially when it comes to critical areas like loans and fees.
In this post, we'll explore how transparency can help financial organizations earn and maintain customer trust during uncertain periods like the present day.
A Matter of Trust
Establishing trust among consumers has long been challenging for banks. The first serious jolt to consumer trust in financial institutions in the 21st century occurred with the 2007-2008 financial crisis.
At the time, the share of consumers who had "faith and confidence” in financial institutions fell from 45% to 39%, according to CPA PracticeAdvisor. Banks and other financial institutions had to spend years repairing relationships with consumers and building trust back in the financial system.
Unfortunately, consumer trust in banks has been shaken again amid headlines about branch closures and, in some cases, the complete collapse of some banks. According to one study by the National Endowment for Financial Education (NEFE), consumer confidence that financial institutions will act "honestly and ethically" fell from 50% to 46% after the collapses of Silicon Valley Bank and Credit Suisse.
Staying Connected with Customers
In times of financial upheaval, customers look to banks for stability and reassurance. That's why banks must find the most effective ways to stay connected with their clients during moments of stress and economic uncertainty.
Whether it's through in-person meetings, phone calls, or digital communication, banks must prioritize their customers' needs and concerns. By maintaining a constant dialogue, banks can build stronger relationships with their clients and help them weather any financial storms together.
Consumers are also increasingly turning to digital-only banking. This can make it more difficult to have meaningful conversations with customers, as it removes the in-person branch experience.
To bridge this divide, many banks are turning to virtualized services such as virtual consultations and branches. Some are even partnering customers with personal bankers who can advise them on their financial health.
Being Open About Financial Operations
Considering the financial upheavals of the past two decades, it is more important than ever for banks, credit unions, and other financial institutions to be open about their financial operations. Customers want to know that their banks are handling their finances ethically and responsibly. That means being transparent about topics like internal balances and liquidity.
Consider detailing your operational standards and decision-making processes for your customers. This could include providing more extensive information on your website or customer portals about how you determine interest rates, manage funds, assess risk, or make lending decisions.
Furthermore, you could regularly publish reports showing your institution's financial health, including details about internal balances and liquidity. This disclosure not only keeps customers informed but also demonstrates the bank's commitment to ethical and responsible financial management, in turn promoting trust.
Despite the traditional inclination for banks to keep such information confidential due to competitive reasons or fear of misinterpretation, this level of transparency is crucial in the current climate. The financial landscape has been marred by instances of unethical behavior, and as a result, customers are increasingly vigilant about where and how their money is managed.
By being more open about their operations, banks can dispel any doubts or misconceptions, reinforcing their reputation as trustworthy institutions. The practice of transparency, therefore, serves as a powerful tool for banks to restore and maintain customer trust in the long run.
Evaluating The Role of Trust in Customer Retention
Customer trust is fundamentally linked to customer retention in the banking sector.
When customers trust their bank, they are less likely to switch to a competitor, even if the competitor offers slightly better rates or services. This is because trust creates a sense of security and loyalty, with customers feeling that their financial institution has their best interests at heart and will provide them with reliable service.
This stability can be a significant factor in customer retention for banks, as acquiring new customers can be five times more expensive than retaining existing ones. A bank that has built a reputation for reliability and transparency can leverage this trust to keep customers, even in an intensely competitive market.
Secondly, trust can lead to increased business from existing customers.
Trusted banks might find that their customers are more willing to purchase additional products or services, such as loans, insurance, or wealth management services. This can significantly increase the value of each customer and create additional revenue streams.
For instance, a customer who trusts their bank for their savings and checking accounts is more likely to choose it as their provider for a new home loan or investment account, trusting that they would receive fair and transparent dealing.
Finally, customers who trust their banks can also become advocates for the institution, recommending it to friends and family.
This word-of-mouth promotion is highly impactful as people typically trust recommendations from those they know. It is also a cost-effective way of acquiring new customers.
Banking on Customer Trust
A bank that has earned the trust of its customers stands to benefit from a larger customer base and increased business, which can significantly improve its returns.
Financial institutions can no longer compete on products alone. They must instill customer trust through engagement, transparency, and continuous evaluation.
To learn more about how you can build customer trust, don’t miss the next Future Branches event. It’s happening at the JW Marriott in Austin, Texas on November 28 - 30.
Download the agenda and register for the event today.