Alerting all banks! Last month, Cisco released a global customer survey revealing some alarming news for banks. In the 12 countries surveyed, nearly one in four bank customers intend to choose another provider for their next financial product or service. And four out of five would trust a non-bank to handle their banking needs. But perhaps the most noteworthy finding was this: almost 30 percent of bank customers do not trust their bank to represent their best interests.
As competition from major tech companies heats up, these findings reinforce a discouraging narrative for the financial industry: when it comes to consumer sentiment, its competitors have a massive advantage. According to Edelman’s 2014 Trust Barometer, technology is by far the most trusted global industry, with a trust level of almost 80%. The least trusted? The banking industry, which barely cracks 50%. And these levels have remained remarkably consistent since the immediate aftermath of the 2008 financial crisis. Predictably, these attitudes are especially pronounced among the generation that came of age during the crisis. A recent survey found that U.S. millennials ranked all of the country’s top four banks among their “ten least loved brands,” and 73% would be more excited about new financial products from tech companies like Google, Amazon and Apple than from their own bank.
How can banks regain brand equity, rehabilitate their industry’s reputation and win back the next generation of consumers? And how can they do so while outflanking widely admired competitors whose business is built on constant innovation, and whose public image is heavily informed (rightly or wrongly) by a “don’t be evil” ethos? Improved customer service and effective marketing can help, but there may be a more elegant solution that addresses both problems: adding a socially conscious, ethical element to their business model.
There’s a strong and growing public appetite for socially conscious business approaches. According to a recent Nielsen survey of global online consumers across 60 countries, 55% say they are willing to pay more for products and services from companies with a positive social and environmental impact – percentages that have grown consistently over time. Though even mentioning this social element on packaging increased sales, the impact was even greater for brands that emphasized it in other ways – think companies like TOMS Shoes and Warby Parker, which link purchases to charitable giving. These types of businesses showed 5% growth, compared with 1% for brands that took no public stance on social responsibility. Increasingly, especially among young people, the public has come to expect businesses to strive harder to make a positive social impact.
But what would a socially conscious approach look like if it were applied to banking? Beyond standard ethical practices like promoting transparency and avoiding abusive lending practices or the sale of fraudulent assets, socially conscious banking encourages constructive practices that actually help people and the planet. This could involve denying credit to activities that violate certain social or environmental standards (doing no harm). But it should also include a renewed focus on actively doing good, by making a concerted effort to bring financial services to communities in need.
A number of innovative startups – and even major players – are applying this approach in practice. For instance, Even is building a smartphone-based service that works with a customer’s own bank account to help them manage irregular income and avoid costly payday loans. In exchange for a $5 weekly fee, it provides advances on future paychecks to cover unexpected shortfalls, makes automatic savings deposits when customers have a surplus, and offers budgeting and other features geared toward keeping their heads above water.
Meed, another financial startup, also uses a smartphone interface to connect customers with banks – but it adds an innovative twist. Along with services geared toward lower-income customers, like a no-minimum balance checking account that provides cash advances collateralized by savings when funds get low, users also have access to SocialBoost™. Through SocialBoost, the banks in its network agree to give 50% of the credit interest they earn from Meed users back to this community, providing members with an additional income stream.
Even American Express, a brand once associated with the wealthy, has broadened its focus to lower-income markets. It is selling both its low-fee prepaid card and its checking account alternative at Walmart and other U.S. retail stores, easing the financial lives of millions of lower-income customers who lack access to banks.
Social approaches like these can certainly improve the image of financial providers and the overall industry, but they can also pay dividends. A report from the Global Alliance for Banking on Values, which promotes socially and environmentally sustainable finance, found that sustainable banks are lending more, attracting more deposits and building a stronger capital base, percentage-wise, than dominant financial institutions. And as traditional markets grow increasingly saturated and millennials’ focus on social responsibility comes to define the business world, serving lower-income customers may not only be an effective way to regain public trust, but a competitive necessity.