Blog post

Why Customer Trust Matters for Banks

By Kristin Moyer | August 13, 2009 | 7 Comments

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Low customer trust matters and should be a big concern for banks.  Here are three reasons why:

  • Trust increases customer satisfaction (sources: “The Commitment-trust Theory of Relationship Marketing,” Journal of Marketing, Morgan and Hunt, 1994; “An Examination of the Nature of Trust in Buyerseller Relationships.,” Journal of Marketing, Doney and Cannon, 1997; and many others)
  • Customer loyalty in banking can be explained to a large extent by customer satisfaction, trust, and communication (source:  “The Role of Communication and Trust in Explaining Customer Loyalty: An Extension to the ECSI Model,” Ball. Coelho and Machas, 2004)
  • A customer that does not trust its bank is likely to seek another banking partner (source:  “The Central Role of Calculus-based Trust and Relational Trust in Bank-Small Firm Relationships,” Saparito, Chen et al., 2002).

There is evidence that a lack of customer trust in banks may hurt larger banks more than smaller banks (source:  “Trust and Loyalty in Client-bank Relationships- a Qualitative Perspective,” Pirson, 2006).  However, this is an industry issue that all institutions must address.  Banks can ill afford challenges with attracting and retaining customers in this economic environment.

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7 Comments

  • Terry Golesworthy says:

    Kristine
    Given that many banking relationships are now virtual and with multiple individuals and we now rarely vist our branch (i last visited my branch in 1996), how do you recommend creating this ‘generic’ feeling of trust with these large faceless organizations? Is social media part of the solution, is it about meeting expecations, level of customer service?

    Are we ever destined to trust banks, credit card companies, insurance companies anymore or are they just satisfying a temporary need until we move on?

  • Kristin Moyer says:

    On the one hand, I believe the banking industry is on the verge of creative destruction – both because of a lack of trust as well as the deep economic recession (such recessions often leading to new business models and competitors). Some of this already started prior to the recession, with the emergence of financial social networks and others.

    On the other hand, there are some very real things banks can do to improve trust and innovate at the same time. For example, it is clear that banks must become much more transparent. Regulatory change will drive this, but it needs to happen at an even deeper level than that: process transparency, pricing transparency, profitability transparency, etc.

    Banks should use multiple mediums to communicate: social networking technologies – yes definitely (blogs, microblogs, FSNs and others); but also Web sites, telephone, e-mail and others. Banks should leverage customer preferences for individual communications, which would be best accomplished through a centralized customer preference profile .

  • Kristin Moyer says:

    Terry, another thing I thought of. Trusting your bank and liking your bank may be two different things!

  • LOL! All the sources in this post are quite old. Does that reflect a rapid deterioration of trust in banks?

  • Kristin Moyer says:

    Hi Christopher. The sources above support why customer trust is important, not that customer trust in banks is deteriorating.

    Sources for the lack of customer trust are too many to list here, but one of the more recent being “51% Lack Confidence in U.S. Banking System,” Rasmussen Reports, 28 July 2009.

  • James Hipkin says:

    I’ve involved in research on customer Loyalty many times. A key factor that comes up repeatedly is confusion.

    There is an inverse relationship between confusion and trust, i.e., when consumers are confused about what they are getting or paying, when confusion is high trust is low. When they understand, when confusion is low, trust is high. This is important because when the research is linked to behavior we see that trust is directly related to attrition. When trust is high loyalty is high. When trust is low, well you get the idea.

    Transparency will be important. So will simplifying product and service offers. This is why online banks are going at the expense of traditional retail banks.

  • Kristin Moyer says:

    James, great point – thanks for adding that to the mix here. This is starting to remind me of plugging one hole in the wall, and water starting to squirt from another hold in the wall. Let’s play this movie out…

    Greater levels of transparency are forced by new regulations. Banks provide more “plain vanilla” type products that are easy to understand. However, these products (for example, credit cards) then become less profitable for banks. So banks start adding annual fees to their credit card programs.

    What happens to customer trust in this scenario? Or maybe “trusting” your bank becomes a separate issue from “liking” your bank? I might now trust my bank (because of easier to understand products), but I might not like them (because they instituted an annual fee that I don’t want or value).

    Curious about your thoughts on this, James.