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Current trust issues in banking

We are living in the times of the trust shift, while some 15 years ago people were afraid to use their credit cards for the Internet transactions, today some customers would rather hide their savings under the pillow than put them in the bank accounts. Consumers of financial products across the globe are losing their faith in banks, and this is why.

Some statistics

The shift has not just started today, for the last 7 years people have been losing their faith in the banking and financial sectors. The recent study from Edelman shows that only 53% trust banks and only 54% trust financial services in 2015. How did these figures look in 2014? Well, while pouring one empty vessel into another we can say that 54% had trust in banks and 53% in financial services a year ago. The statistics look quite similar for the previous years too. What does it tell us? It means that either the banks don’t really know what to do in order to revoke the trust or they simply do not care.

You may ask a logical question, if people do not trust banks, who do they trust then? This year nearly 8 out of 10 people trust in technology...even after Mtgox bankruptcy, post-Swiss National Bank events crushing retail FX sector and many other “surprises”. Why do they? Let’s examine my three favourite fields where technology significantly overtakes banking & finance in terms of earned trust.

1. Transparency

Almost every FinTech company tries to provide as much transparency as possible. When it comes to transferring my money abroad, almost every service gives me transparency. PayPal would show me all of the fees before I proceed with the transaction, TransferWise would do the same.

When it comes to banking, I can hardly get any transparency, neither in terms of fees nor in terms of exchange rates. I am not saying that a technological solution would always offer a more feasible deal, but it would certainly offer a more transparent one. In simple words, I generally have to spend hours to find out the costs of a bank service or simply use it and accept the fares that I am not aware of. Does such a process evokes trust? I don’t think so.

2. Ease of Use

A modern web service would come together with a useful FAQ section, effective email support or, sometimes, a live chat. Even though I still may run into a trouble or simply misunderstand a feature, using such services seem pretty easy and intuitive, unlike banks.

Whenever I am experiencing an issue with one of my e-wallets, it usually takes me an email or two to get it fixed. It does the take same or nearly the same amount of messages to get help from my bank. But here is the trick. To get support from my bank I firstly have to find my token and look up my user ID. After that, it takes me a few passwords to get to the Internet Banking and ta-da, I am ready to send a message to the support officer. Yes, I do have to follow each of these steps to submit another message. Hence, while it takes me roughly 1,000 characters to solve a problem, the whole process is nearly 5 times more time consuming at the bank. This of course does not make me distrust my bank, it rather makes me unhappy about the service. But, can I trust someone who makes me unhappy? I doubt that.

3. KYC, the real one

It is obvious that the data is important now, hence more and more organisations are trying to gather as much information about the client as possible. This leads us to the concept of really knowing your client; understanding his habits, favourite days to consume the product etc, rather than just performing a verification of his identity and address. People tend to develop trust when there is some kind of a connection between them. While many services easily establish automatic communication and offers based on the preferences, the banks seem to totally skip this step. What is even more painful is that most of the companies have to actually fight for most of the data, while banks have it on a silver platter.

Conclusion

The banks are losing trust and soon they may start losing clients. In a few years we will be able to see a smaller count of banks, these will be the banks that could successfully and fully bring their services online, provide attractive offers and, most importantly, restore the trust and faith of their clients.

 

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Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 07 September, 2015, 16:06Be the first to give this comment the thumbs up 0 likes

Since I'm currently struggling with my bank to find out the reason for charging whatever fees it charged me for a recent incoming US$:INR remittance, I can't agree more with your first point about upfront mention of charges in the case of PayPal, Xoom and other nonbanks.

On the other end, my customer in the USA was wary about having to complete a long form for initiating the payment at his bank unlike nonbank. So, I also agree with your second point about nonbank systems being easier to use.

That said, my bank has a Customer Complaint Redressal mechanism. While it might seem sluggish, it eventually works. The same can't be said about many nonbanks when they freeze merchant accounts for no rhyme or reason. Their CCR mechanism is a joke. They have a huge "my way or the highway" attitude problem. People lose access to entire remittances for months. Compared to that, with banks, it's only a question of going out of pocket for a few $ and suffering some friction for a few days.

So, based on my personal experience with both banks and nonbanks, when it comes time for my next inward remittance, I'd anyday want it to be routed via my bank rather than nonbank.

Konstantin Rabin
Konstantin Rabin - Kontomatik - Warsaw 07 September, 2015, 17:20Be the first to give this comment the thumbs up 0 likes

You are certainly right, some FinTech companies may provide worse support than the banks, in most of the cases banks have at least some standard. That being said, it all depends on your choice of a financial service provider. Established, or simply customer-centric, FinTech companies would certainly be able to help you better and faster than any bank.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 September, 2015, 09:16Be the first to give this comment the thumbs up 0 likes

No, I respectfully disagree.

  1. The point is about trust, not support. As things stand, there's not a single nonbank that I trust more than the banks I deal with. Unless there's a cataclysm in the financial world, I don't expect that situation to change.
  2. Contrary to all the hype, there's actually very little choice of nonbanks apart from PayPal when it comes to B2B cross-border remittance, which is the transaction I referenced. I've reached this conclusion after exploring TransferWise, Xoom and many other nonbanks. Either they don't support this transaction type or, if they do, their processes have as much friction as banks'. Since you've so asserted that "fintech companies ... better and faster than any bank", can you cite names of a couple of nonbanks that you've experienced that lead you to this conclusion? (As long as they provide B2B cross-border remittance service, it’s okay even if they corridor is different from my case of USA-India.)
  3. In my previous comment, the sender bank was different from the receiver bank. It struck me later that nonbanks provide benefits #1 and #2 only because they're present in both sides of the cross-border transaction by themselves. If I now compare the nonbank experience with the experience – if available - of the same bank being present in both countries (e.g. Citi UK to Citi India), I'd say that the banking route trumps the nonbanking route on all counts and more: (1) Highly transparent: Zero fees (2) Excellent UX: The screen is very simple. (3) The transaction is instant. Money is received directly in bank account in realtime.
Konstantin Rabin
Konstantin Rabin - Kontomatik - Warsaw 08 September, 2015, 10:13Be the first to give this comment the thumbs up 0 likes

When looking at it from B2B perspective, you certainly have a point. Most of the FinTech companies are still in their early stage and that's why they are much more often customer centric, rather than business.

Speaking of my personal experience as a consumer of financial products. Whenever I am a party of an international transaction, I always have to pay costs. How clear is this cost structure? Not clear at all. Actually once I had to pay fees that amounted nearly 30% of the transcation. 

When it comes to problem solving, usually it takes me a few short emails with PayPal or Skrill to get my issue resolved. Timewise it may take minutes, usually hours. Compared to this, solving issues with banks is quite a big trouble. I had to send over notarised copies (hard copies!) of my passport, write long and descriptive messages and wait for days and weeks to solve my puzzle. 

What I am trying to say is that consumer finance has been improved quite well with the presence of FinTech companies and it is only the question of the time when the business sector start benefiting from it the same way. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 September, 2015, 10:39Be the first to give this comment the thumbs up 0 likes

Okay, fine, but my consumer finance experience is quite different from yours. I've used both banks and nonbanks for personal cross-border remittance for over two decades and the experience w.r.t transparency of fees and CX have been more or less the same.

I'm not so sure that business sector will benefit from nonbanks anytime soon because (1) In the nearly 10 years that I've been hearing this contention, nonbanks haven't made much progress for business cross-border payments (2) Nonbanks are VC-funded and most VCs are wary about funding B2B startups.