Financial loyalty driven by trust, study finds

Consumers' trust in their primary retail banking institution is a major driver of share of wallet capture, according to a study by financial services strategy consulting firm Mercatus.

The study found that the average share of wallet captured by financial institutions increased by 18 percentage points on a scale of 1-5, from 34% at a trust score of 1 to 52% with a trust score of 5. For a large bank with more than one million retail customers, the revenue differential was estimated to be as much as US$100 million.

Link between trust and results
The '2008 Financial Services Franchise Health Study' showed a definite link between the level of consumer trust that banks develop and their business results, according to Bob Hedges, managing partner for Mercatus.

Although trust in an institution does not necessarily impact new customer acquisitions, it was found to be a major driver of success for cross selling, capturing share of wallet, and customer retention. Key factors affecting the level of trust that consumers have in their banks included:

• Transparency of banking costs, such as deposit service charges and nuisance fees (such as over limit and late payment fees on credit cards);
   
• Clarity of operational processes;
   
• Employees' preparedness to go 'above and beyond' to meet customers' needs.

Gaining share of wallet
According to the Mercatus analysis, each incremental step up in consumer trust directly translates into share of wallet gains across all consumer segments. Within the Mass Affluent segment, the impact is the strongest with the share of wallet captured doubling as trust scores range from 1 to 5.

"Consumers are quite discerning when it comes to assessing the performance of their bank on the primary elements that comprise trust," explained Mercatus partner Teresa Epperson. "The primary trust elements are reliability - consistent dependable banking experience; transparency - clear and accessible information regarding pricing, rates, fees, product features; engagement - the quality of their interactions, and championing the customer through relevant products and services that are in the best interests of the consumer. The challenge that banks face today is that other financial services competitors such as brokerages and credit unions are outperforming the banks in these areas."

How to build trust
The study also highlighted ways in which financial services providers can build consumer trust, including:

1. Completely disclosing fees for each product and service;
    
2. Fully explaining each step of the process when opening new accounts or addressing service issues;
    
3. Ensuring the safety of consumers' personal information;
    
4. Establishing and maintaining predictable fees;
    
5. Deploying empowered and knowledgeable employees to respond to customer service enquiries.