Lost Trust Hitting the Banks Where It Hurts

“Trust is a fragile thing - hard to earn, easy to lose”. As 2020 gets underway marking the outset of an exciting new decade, Banks are teetering precariously close to the edge in the high stakes of customer sentiment.


Rewind to the start of the last decade. It’s 2010 and global banks are suffering from crippling introspection in the wake of the Global Financial Crisis, resulting in a raft of ‘too big to fail’ bail outs and embarrassing mea culpa’s. While Australian banks escaped the GFC relatively unscathed, by 2018 they are reeling from the incisive Hayne Royal Commission into Misconduct in the Financial Services Industry.


Mistrust and cynicism have increasingly pervaded customer dealings. With alarming frequency new scandals, misconduct, risk management failures, compliance issues, technology blunders and callous wrongdoing have transformed perceptions of the profession of banking itself.


Within a single generation the highly trusted local bank manager has become a thing of the past, replaced by artificial intelligence (AI), automation and a single-minded focus on shareholder return. The Judo Bank 2019 SME Insights Report found that SMEs level of trust in the banking sector continues to plummet, rating only 2.4 out of 10.


"Big banks have stripped a lot of cost and skills out of their business model and centralised into call centres”

- Joseph Healy, Judo Bank Founder and Co-CEO.


The reputational harm is irreparable according to thousands of direct interviews conducted by East & Partners with CFOs and corporate treasurers globally.


Fast forward to today with the GFC and Hayne Royal Commission behind us and what has truly changed? Have newly installed CEOs, reshuffled boards, stiffened regulation and leaps in digital capability delivered the ‘positive customer outcomes’ promised by repentant management?


Lost Trust – An Uphill Battle

The answer to these vitally important questions unsurprisingly varies depending on who you ask. Banks insist they have ‘taken their medicine’ and are now coming clean once and for all however customers have grown progressively wearier of perennial scandals, indecisive action and a lack of leadership.


The growing disparity between customer expectations and service outlay has opened the door for nimble new entrants and fintechs to increasingly eat the incumbent major’s lunch, notably in traditional areas of dominance such as payments and FX.


The most pressing concern is determining specifically what impact diminished trust is wreaking on the bottom line of banking operations over both the short and long term. Is this ‘new normal’ forcing deeper cuts and cost pressures among bank divisions already strained to operational limits? Or can banks proactively streamline engagement and get back on the front foot with what customer’s really want?


Customer Churn Slow to React to Rising Competition

The traditional reluctance from small businesses to ‘multibank’ for their business banking needs, in stark contrast to panel banked middle market and institutional enterprises, is rapidly diminishing. Microbusinesses (A$1 – 5 million annual turnover) and SMEs (A$5 – 20 million turnover) are displaying the highest levels of switching intention ever recorded in East & Partners long running research programs. This trend is set to be supercharged by Open Banking regulations despite their recent six month implementation delay in Australia with regulators citing security concerns.


Australian regulators anticipate Open Banking rules offering full account portability (much like moving phone numbers between telecommunications providers) and greater third-party control over customer’s own data will boost the advance of neobanks and new entrants.


"If Australia’s smaller banks can get large enough to stay viable, they can become significant for the whole system. Their existence alone can force incumbents to up their game”

- APRA Head of Licensing Melisande Waterford


Based on the timeline of the successful British neobank model, competition is set to intensify as SME customers assess their cash management, credit, FX and payments options.


Many customers are using these challenger groups as secondary providers for one-off or infrequent transactions, so far reluctant to shift their entire business banking wallet away from established high street lenders. However, the tide is turning with the intention to switch providers steadily increasing.


Exhibit A: SME Intentions to switch primary provider, by product

% of Total


Quantifying the Bottom-Line Market Share Impact

The revenue impact is difficult to quantify as ‘accountability’ has become the new name of the game. In the case of NAB, bonuses and pay rises have been curtailed as Australia’s largest business bank set aside A$1.1 billion in damages for misconduct and mis-selling of advice revealed by the Royal Commission.


NAB’s full year profit plunged by over ten percent following the departure of CEO Andrew Thorburn and Chairman Dr Ken Henry in 2019. As acting CEO Phil Chronican said the bank faced a ‘very challenging’ year that required ‘significant actions’ to deal with past problems and regain the trust of customers and the public. Highly regarded Mr Chronican is now taking the reigns as Chairman with ex-RBS CEO Ross McEwan stamping his mark on the group as the new incoming CEO of NAB.


East & Partners research confirms a positive correlation between best of breed customer satisfaction, preparedness to advocate and ‘mind share’ development with sustained market share growth. In contrast, Banks failing to actively rebuild trust and invest in effective customer retention strategies are suffering the full force of customer churn.


What Next?

Banks are tasked with the daunting challenge of rebuilding customer trust at a time when customers have never had more competitive options available to them. East & Partners’ data confirms friends and colleagues are the main source of advice for key decision makers, emphasising the importance of ‘speaking the customer’s language’ when it comes to meeting rising customer expectations. For the same reason the Banks find themselves in this predicament, actions speak louder than words when it comes to repairing confidence and trust.

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