Financial Services - Moving the trust dial through Life-Centred Design
Trust in the Financial Services remains low, a characteristic of an industry unable to shrug off the past and in need of a shake-up. The Edelman Trust barometer, a survey completed across 28 countries with 32,000+ respondents, shows that Financial Services is one of the least trusted industries, followed only by Social Media. It highlights that only 38% of respondents believe that Financial Services companies serve the interests of everyone equally and fairly.
Millennials and Gen-Zs make up half of the world population and while these consumers have embraced the convenience of digital technology to access their services, we are now seeing the emergence of trust and privacy concerns around their data – it is imperative the Financial Services act upon these concerns to maintain trust.
There is also a record-high income-based trust inequality, with those on lower-income trusting the Financial Services significantly less compared to those on higher income.
This lack of trust can have significant repercussions for businesses in the Financial Services. It can lead to reduced investment, increased regulatory scrutiny, and ultimately impact growth. So, what can be done to turn the tide and regain customer trust? Perhaps the answer lies in a new approach to the way organisations think and deliver financial solutions?
This leads us to explore a few key topics:
What is causing the erosion of trust in Financial Services?
What has changed to recover the trust in the industry?
What more can we do to move the dial from 'not trusted' to 'highly trusted'?
What has caused the erosion of trust in Financial Services?
To be able to recover trust, it’s important to explore what caused its decline. While it’s a complex subject and there is no one thing that led to the general social perception, there have been a number of events in the past that were the drivers of mistrust, such as the 2008-2009 financial crisis and the mis-selling of Payment Protection Insurance (PPI) during the turn of the century. And in more recent times, the rise of ‘Greenwashing’, where organisations make misleading sustainability-related claims to investors or consumers, usually to boost their reputation and bottom line.
According to a report published by RepRisk, an ESG Research provider, the number of instances of greenwashing by banks and Financial Services companies around the world rose 70% in the past 12 months from the previous 12 months.
"Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an oil and gas company."
- RepRisk
Such misleading communication impedes progress towards collective goals and damages customer confidence in investment products that may actually drive sustainability.
These damaging events have led many to believe the system is biased against the regular people and in favour of the rich and powerful. This has also resulted in significant reputational and financial cost to the Financial Services industry with the impact illustrated below.
The great recession
£133 billion
of taxpayers’ money pledged in support of UK banks during the government bail-out (with a proportion recouped in the years since).
Source: Taxpayer support for UK banks: FAQs – National Audit Office
The PPI scandal
£38.3 billion
Compensation paid to people by the banking industry for mis-selling Payment Protection Insurance.
Source: PPI Complaints / FCA
Greenwashing
£25 million
A fine imposed on a major banks Asset Management subsidiary by the US Securities Exchange commission for greenwashing.
Source: Reuters
What has changed to recover the trust in the industry?
Over the years there have been efforts to regain trust in the industry. The regulators introduced a number of measures to make the Financial Services system more resilient, secure and fair. Some prominent examples in the UK, EU and Globally include:
New regulatory framework in the UK
In 2013, the Financial Services Act came into force which created a new regulatory framework for financial services aimed at ensuring financial services organisation treat customers fairly, encourage innovation and healthy competition, and help identify potential risks early so they can take action to reduce the risks.
New directives in the EU
The European commission administered the EU Payment Services Directive (PSD2) to regulate payments service providers throughout the European Union and the European Economic Area. The PSD aims to level the playing field by harmonizing consumer protection and the rights and obligations for payment providers and users.
Among other things, banks must provide access to current account data to providers through application programming interfaces (APIs), allowing third-party developers to create new products and services that make banking more convenient for consumers.
Emerging global environmental, social and governance (ESG) regulations and standards
While the ESG approach globally is fragmented, the regulatory reform is on the horizon. The Securities and Exchange Commission (SEC) has already approved a final rule targeting greenwashing in investment funds and imposed a number of fines on major Financial Services companies. Other countries, such as Netherlands, Germany, France and Singapore have published reporting guidance and standards, and new rules on sustainable disclosures are expected.
While these standards, guidance and rules are welcome, there is more that could be done to establish proactive initiatives by Financial Services companies which could remove the need for regulator intervention in the first place.
What more can we do to move the trust dial?
Hindsight is a wonderful thing, and given the complexity of financial products and services, it can be hard to predict unintended consequences that they may drive. Many organisations have already started adopting the guidance and standards introduced by the regulators and reap the benefits of increasing trust. That said, more can be done to win the hearts and minds of people in organisations to drive integrity and shift the importance of ethics to the forefront.
One way to achieve this is by adopting the Life-Centred Design (LCD) framework as part of product and service delivery. It’s an emerging approach and philosophy that takes a longer-term perspective and goes beyond human needs to consider sustainability, environmental, and social concerns. LCD is not about removing humans from the core of the design, however, it’s about extending the use of tried and proven design thinking practices in a mindful way.
By adopting this approach, organisations can help clients reduce potentially adverse impacts of their products and services by driving systematic change in how they think about and create services and how best they should be consumed by customers.
Click below to read the full article, including an example approach of the activities that you may consider adding as a standard into your existing design thinking framework.
