Many consumers have become all too familiar with the $38 caffe latte — $3 for the coffee plus the $35 overdraft charge on their bank debit cards. Such transaction charges, especially when they are a surprise, have seriously eroded the trust that consumers place in their primary banks. Just 10 years ago, these fee strategies were being hailed by industry analysts as great new means for generating revenue. But now the evidence suggests that the erosion of trust that these practices produce is simply not worth it.
For the past three years, our firm, Mercatus — a financial services strategy consulting firm — has conducted a semiannual “Franchise Health Study” designed to gauge consumer perceptions of financial soundness and the levels of trust they place in their banks. While perceptions of soundness have improved as the industry has stabilized following the recession, levels of trust have remained flat, largely as a result of the lack of transparency in fees and pricing and the resulting uncertainty and skepticism such an approach engenders. In the rush to maximize revenue, some institutions lost sight of customers, who, buffeted by the recession, now scrutinize their financial service providers far more closely.
Importantly, the erosion in consumer trust has also eroded business performance. In just 18 months, from the middle of 2008 to the end of 2009, which our latest study encompasses, the average “share-of-wallet” — the percentage of business a financial service company captures from each customer — dropped from 44 percent to 36 percent as consumers allocated less business to their primary banks, with the greatest drop suffered by large banks and investment firms. In the same period, large banks’ ability to acquire new customers fell by almost half, while their rate of attrition with existing customers almost doubled.
Other Industries Losing Trust
Banks aren’t alone. Nuisance…