Consumer confidence (or the lack of) in financial services
A paradigm shift in consumer confidence has taken place with the worst recession on record forcing people to evaluate their personal and household finances. We explore the extent to which consumer confidence has been tarnished post-recession. What has changed in the British psyche since the credit crunch?
Findings from a recent study give an insight into the extent to which consumers have coped with and embraced the aftermath of the recession, and how that might manifest itself in terms of future consumer confidence in financial services.
An issue of trust
With an ailing British psyche and low confidence in ‘UK PLC’ come issues of trust and cogent decision making. Consumers have had their fingers burnt in the economic meltdown. Many thought they were making sound investment decisions in property, savings and investments, pensions etc., only to discover that the value of their wealth had been, at best, inflated, and, at worst, false all along.
Many people feel let down by a system and by institutions that had promised, and often claimed to guarantee, to protect them and their assets. For those who have had the rug pulled swiftly from under their feet, it will take financial services institutions a long time to rebuild constructive dialogue and long-term, meaningful relationships with their customers again. Any form of marketing communication or advertising that ignores either explicit or implicit acknowledgment of consumer's financial plight will further alienate and disengage consumers, rather than start to pave the road to recovery and rebuild constructive dialogue with potential audiences. It is important to consumers that financial services institutions acknowledge the major part they have played in the crisis, and that they have all been culprits to varying degrees. Explicit apologies will work if they are genuine and consumers feel that lessons have been learned. Simply carrying on with marketing strategies that ignore what has happened over the past 24 months or so will come under fire.
YouGov has statistical evidence to corroborate this critique. When we posed the question: “Thinking generally, in light of the recent economic crisis, when it comes to looking after your money do you trust the following types of company more, less or is there no difference?”, High street banks are trusted less by six in ten people, followed by credit card companies being trusted less by five in ten people. Four in ten trust pension and insurance companies less, whilst three in ten trust IFAs and building societies less. Interestingly, the winners look to be comparison sites with one in five trusting these more since the economic crisis.
This indicates a shift, albeit a small scale one, in which consumers increasingly shape and take responsibility for their own personal finances online, rather than relying on the traditional, direct or face-to-face channels. Perhaps we should question the extent to which the industry is really ready to cope with a genuine shift in consumer pro-activity when it comes to sorting and managing their personal finances. There is also a question as to whether the industry is creating speedy and efficient enough processes for when people are on the tipping point of a product purchase online. Many financial products still require several days before a decision can be made on the success of the application, or, more often than not, require consumers to phone/visit a branch, despite having just engaged with a lengthy online application process and provided all of the requisite detail for financial services companies to be able to make the decision as to whether the applicant is a creditworthy or eligible candidate for the product in question.
Perhaps there is a paradox herein. As some banks revert to a more traditional, customer-centric service with extended branch hours/approachable and friendly staff-based propositions etc. (e.g. the new Metro bank branches in London), many younger, more financially astute customers simply want to be in charge of their own financial destinies. Rather like the advent of digital TV with pick-and-choose scheduling, i.e. non-linear rather than linear models of revenue generation, financial services companies need to learn to think about new models, products and services for the younger generation who are the wealth holders (or perhaps permanent debtors?) of tomorrow. Online is the preferred communication channel for the younger generation, yet few financial services companies appear to have cottoned on to the real and genuine power of online activity, not just as a marketing and brand building or call-to-purchase tool, but as the most efficient, transactional route for under 34s in particular. The PC/Mac is a physical extension of many young people; much like the “Club Card” fob is part of the personal identity that Tesco wants to create for its customers. I cannot think of a single financial services company that has fully maximised or harnessed the power of Online in marketing to its younger, more affluent customers in particular.
But, is the future bright?
Despite systemic trust issues and a rather bleak picture when it comes to the orderliness of UK household finances, there is a tacit optimism and a sense of anticipation about the future.
A total of 29 per cent of the UK population expect house prices to rise between 0 and 10 per cent over the next 12 months, which is a greater level of optimism than ever seen since YouGov has been asking this question on its DebtTracker survey. Most people expect house prices to recover within the next three to five years, suggesting that a medium term mindset is dominating financial behaviours.
However, there are elements of doubt creeping back in as we edge towards a period of potential political uncertainty and as Britain's deficit continues to deteriorate, with widespread severe cuts to public sector budgets after the general election and spending review.
And whilst more and more people were gradually expecting their household finances to get better during the course of 2009, net consumer positivism with regards to “how do you think the financial situation of your household will change over the next 12 months”, is starting to show an incremental decline again, with more people expecting the situation to get worse.
The same negative disposition applies towards consumers' dissatisfaction with their family's likely standard of living over the next 12 months. Fewer people are satisfied with this outlook now, compared with higher levels of satisfaction witnessed in 2009.
Fewer people are confident that their workplaces will grow over the next 12 months, with net agreement amongst those expecting the number of people employed in their workplaces to go up in the next 12 months on somewhat of a downward spiral.
This, however, is at odds with consumers' likely satisfaction with the UK economy over the next 12 months. Here, we see more people adopting a more optimistic outlook, purporting to be more satisfied with the economy than last seen in early 2008, that is, pre-recession.
“Will we simply accept that a society predicated on debt and credit is to be the norm, at least for the foreseeable future, and will new forms of derivatives or financial instruments emerge to structure economic society on this very basis?”
Whilst things have stopped getting worse, for many people, the recession is still painfully real, and it is this that drives financial behaviour. Although there are some “green shoots of recovery” to be seen as far as consumers are concerned, our most recent data sets make us hypothesise that these will be short-lived.
The uncertainty about UK plc's position as a leading global player coupled with the innate and now well-entrenched fears about job security, individual indebtedness and UK's credit rating worthiness, is fostering a nervous, cautious and more subdued consumer.
When it comes to savings and investment products in particular, financial services organizations should never forget that they are, after all, playing with consumer's money. They are being contractually entrusted to look after and safeguard it and ideally, make it grow. For many consumers, they feel the contract has been rather one-sided, with banks able to treat customers as they choose, with little return or no regard for individual circumstances or personal situations.
The recession has reminded us all that we may well need swift access to our cash, and, as a result, there has been a heightened desire and expectation for savings to increase. However, the huge lack of trust in traditional financial institutions has left consumers unsure of where to turn. There are some short-term winners, such as comparison websites as mentioned above. However, the real challenge is for institutions to create sustainable, truthful, honest, transparent and open dialogues with their customers. No more false or grossly over-egged promises. Simple offers from trustworthy sources will be the ones that do well. Anything less will not cut the mustard amongst consumers, who have awoken rather abruptly from their financial slumber, and who, as a consequence, have undertaken a radical and rapid post-mortem on their household finances.
More questions than answers
Even with all the data and insights discussed above, there are still many questions to answer. Although Joe Public is more financially savvy and politically engaged (or voluntarily disengaged) than at any point in modern history, experience tells us that, in the long term, leopards rarely change their spots. On that basis, will some of the more thrifty, frugal consumer trends identified in this paper, such as cutting back on luxuries and nice-to-have things, withstand the test of time, or, as soon as we have had several consecutive months of moderate (as opposed to sensationalist) doom and gloom, will the “same old, same old” apply?
Will quality rather than price start to become a bigger priority for people again, or, will everyone continue to boil everything down to a simpler, common denominator, namely cost, given the hard times that undoubtedly lie ahead? Will people continue to exert conservatism or stoicism vis-à-vis their personal and household spend, or will they simply revert back to the decadent days as soon as the media green light is received that we are out of trouble?
Will consumers remain relieved and released because their values and morals have been challenged, because they have self-reflected and changed their ways, or will the “old” model of capitalism triumph, coming back with an even bigger vengeance? Will we simply accept that debt is indeed the new way of life and create new financial models around the assumption that most people will not be able to sail through life with their finances constantly in the black? Will we simply accept that a society predicated on debt and credit is to be the norm, at least for the foreseeable future, and will new forms of derivatives or financial instruments emerge to structure economic society on this basis?
This is a shortened version of “New insights into consumer confidence in financial services” which originally appeared in International Journal of Bank Marketing, Volume 29, Number 2, 2011.
The author is Adèle Gritten.