Rebuilding Trust in Financial Services
It is critical for customers to read the “fine print” and be more financially savvy about the implications of greater spending power. Customers believe that their financial services (FS) provider has their best interests in mind when sending out invitations for extra spending power: They think that such offers must be based on analysis of spending needs and transaction data. However, there is often a mismatch between customer expectations of their FS providers and what these providers actually do in practice.
The FS sector has experienced various conduct-related scandals all over the world in the recent past where it has been held responsible for not being fair to customers. The ongoing efforts of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia continues to bring to the surface multiple examples where customers have been let down by the FS sector.
So where does the problem lie, and how can the sector start to respond?
Organizations have suffered from being overly focused on initiatives that realize short-term financial gains, often at the expense of those that provide greater utility to customers over the longer-term.
Recognize Root Causes
It is easy for executives to dismiss any issues that have arisen as “isolated incidents.” It is much harder to start investigating structural factors that may be contributing to these failures. The specifics would vary for each country, industry and company, but some hot spots that warrant further investigation include:
Prioritization. Organizations have suffered from being overly focused on initiatives that realize short-term financial gains—often at the expense of those that provide greater utility to customers over the longer term. Understanding how an organization prioritizes investment decisions and balances competing objectives (short term versus long term, shareholder returns versus customer satisfaction) can show us how seriously that organization is thinking about meeting customer needs.
Incentives. Are incentive structures for executives and management adequately aligned with the organizational objectives for better meeting customer needs? Is customer experience and satisfaction being measured and assessed in a meaningful way? The status quo for most organizations is either a limited focus on customer outcomes in incentive structures or the use of very high-level aggregate metrics (for example, use of net promoter scores as one of many metrics in a balanced scorecard).
Culture. While culture only tends to come into focus when things go wrong, there have been advances in measurement approaches that give a better and more objective understanding of organizational culture over time. In addition, it is helpful to assess whether management puts customer outcomes at the core of their decision-making processes. How customer complaints are handled can be a good proxy for this.
Rebuild and Not Just Remediate
To their credit, CEOs and boards of large FS organizations have admitted to their failures in meeting customer expectations. Most organizations have some kind of remediation program in place to compensate customers, and many have started fixing existing processes that contributed to the issues.
It is critical that organizations start to think about whether making tactical changes to existing processes can help minimize the risk of similar events happening again. Some areas to consider here include:
Customer needs. To meet customer needs, FS organizations need to better understand them. This requires additional data and a clearer picture of the customer segments they are serving, as well as their motivations and goals, among other factors. This base of information can allow organizations to better deliver the right propositions at the right time.
Product design. The majority of FS products are overly complex. Organizations should be creating simpler, more transparent products that are easier to understand and that better meet customer needs.
Finally, organizations need a step change in their focus on measurement to not only continue to better understand customer needs over time, but also to have more effective controls and a governance framework that allows early identification of emerging risks.
Organizations’ management information systems have not been adequately granular, timely or accurate. This has prevented management and boards from staging timely interventions when problems arise. In an era where data is of strategic importance, it is imperative for FS organizations to address this and invest in the appropriate infrastructure and processes.
Gaining someone’s trust is hard. Trying to regain it once it has been shaken is even harder. Recent events have put the FS sector on notice. While the path to regain trust is not straightforward, the costs of inaction are too high to ignore.
A version of this piece appeared on Actuaries Digital.