Trust in Banking Needs Constant Investment

Trust in Banking Needs Constant Investment

JUNE 6, 2024

By: Tyler Brown

Engagement and Retention

US consumers narrowly trust companies in the banking sector to do what’s right, according to a survey by Edelman. The 61% of consumers who rated it as trustworthy put the sector in Edelman’s “Trust” range of 60-100%. India was at the top, with 87% of respondents who said they trust the banking industry, and Spain was at the low end, with 45% who said the same. The US numbers hardly changed year over year, falling by two percentage points, suggesting a measure of stability.

That stability may come as a surprise given the survey’s timing. It was fielded in November, less than a year after the high-profile failures of Silicon Valley Bank, Signature Bank, and First Republic Bank; two other bank failures; the closure of Silvergate; and the sale of PacWest. Financial institutions (FIs) should take from these numbers that consumers’ trust in the US banking system is tenuous but can quickly snap back. With the right investments in customer relationships and a consistent projection of stability, FIs should retain their customers’ trust in the long run and be prepared to weather short-term turmoil.

Crises, however, can dent relationships no matter the trust in the system and test the strength of the customer bond. As we wrote in April, the acute stage of the 2023 banking crisis shook consumers’ confidence in the stability of their bank. The bank runs were terrifying for FIs because little could be done to stop them, particularly amid poor preparation. The lesson should be that customer confidence in the FI can drop without warning, and an improvised response may not be quick enough.

FIs need a framework for customer retention that stands in even the most difficult times. Based on our research, there are two main parts to this:

  • Long-term trust building. FIs should shape a brand identity around a reputation for stability and transparency. That includes responsible balance sheet management and a marketing strategy that engages customers and sets a baseline for stickiness.
  • Crisis preparation. FIs should plan how to respond to a crisis. Crises may be specific to the bank, like with a data breach, or caused by the industry at large, like with a large-scale liquidity crunch.

Bankers may get lucky and never have to ride out a storm, or if they do, have the tumult pass quickly and without impact. But it pays to prepare. It’s dangerous for an FI to find itself in the middle of a crisis without a plan, particularly when that crisis could destabilize the institution. It’s crucial that FIs cement a trusting relationship with customers during normal times, giving them a cushion when customers get nervous, and be able to act swiftly and with confidence when there’s a risk of panic.