Insights | 04.29.20
Financial Product Usage Creates Trust, Which Engenders Loyalty
by: Larry Cohen, Director, Consumer Financial Decisions, Strategic Business Insights & Tim Kehrer, Research Director, Kehrer Bielan Research & Consulting
The recent BISA study, “Evaluating the Total Return on Investment Services to the Banking Enterprise,” demonstrated that when customers purchase an investment where they bank, they increase their loyalty to the institution and do more banking business there. Some have argued that they invested at the bank because they were already more loyal to the institution. The study presented evidence that use of investment services creates loyalty, not the other way around. Now comes new evidence from the MacroMonitor — the largest, most comprehensive survey of consumer financial decisions — that usage creates trust, which engenders loyalty.
First, let’s consider the concept of trust. One might think of trust as the measure households use to rate their financial institutions and intermediaries — similar to FICO scores that financial institutions use to rate consumers' credit worthiness. Scored on a three-point scale (a great deal, some, and hardly any), trust indicates to what degree the consumer has an emotional connection with, and can rely upon, a provider. Trust relates directly to brand reputation and customer loyalty. A data breach, an unethical or unfair customer or employee policy, a poor customer experience, regulatory non-compliance, or unacknowledged and uncorrected problems (individually and collectively) damage consumer trust.
The MacroMonitor provides subscribers with a means to look at trust any number of different ways. For example, a trend of households with $100K or more in financial assets ($100K+FA HHs) that trust financial institutions a great deal by type of institution shows that between 2002 and 2018 for all institution types (with the exception of financial-planning companies), the proportion of households that trust-a-great-deal (TGD) has declined. Bank TGD has decreased the most — 20 percentage points — to a more modest decline of only two percentage points for credit unions. In 2018, credit unions have a higher proportion of households that TGD than do any other institution type.
+ View larger image on the Kherer Bielan website
To illustrate the importance of TGD scores, we compare the proportion of households that now use each type of institution, all households that trust that institution a great deal, and households that both use that institution and TGD. In every instance, use of an institution increases trust. Why is this so important to providers? Because use and trust together produce greater loyalty and likelihood of recommendation.
+ View larger image on the Kherer Bielan website
Consumers are strongly encouraged to check their credit score annually; institutions and intermediaries should check their TGD annually, as well. Doing so could alert an organization to a potential problem or serve as a scorecard to inform improvement to your institution's valuation and profits. The MacroMonitor provides an important, impartial third-party look at households that TGD and can compare different institutions' loyal consumers.
The MacroMonitor provides fact-based information to identify, profile, and understand household populations better. For more information, please contact Strategic Business Insights’ Consumer Financial Decisions Group.