“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
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
- 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
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
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
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
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
NAB’s full year profit plunged by over ten percent
following the departure of CEO Andrew Thorburn and
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
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.