Banks Lack Vested Interest in Customers’ Financial Health

The verdict is in: Banks continue to have a reputation deficit. To close the gap, banks will have to prove they are in the business of helping consumers improve their financial health.

The financial services industry has a poorer reputation than any other major sector of the U.S. economy, according to the latest survey by American Banker and the Reputation Institute. Customers tend to give their own banks higher marks than other banks, but that's small consolation given how low banks rank overall. Nor does the trend line seem to be improving five years after the financial crisis.

Past actions are only part of the story behind the reputational challenge.  Survey respondents ranked products and services – shorthand for the overall value proposition – as the most important factor in measuring their bank's reputation.

So far, the banking industry has tried to respond with "customer friendly" policies or new "value added" services, essentially tweaking the existing business model to comply with new regulations and stay on regulators' good side.

This is a good start, but it will not be sufficient. Why? The financial crisis and the resulting Great Recession generated a lot of anger at the banks, but, more importantly, they have dramatically shifted the long-term financial prospects of most Americans.

This is particularly true for millenials, who in theory should represent the banking customers of the future. This cohort has been hit harder by unemployment and the housing collapse, and younger people are carrying record levels of student debt. A recent study by the Urban Institute finds that young people up to roughly age 40 have accrued less wealth than their parents did at the same age.

Americans of all ages are changing the way they define success. A recent American Express-commissioned survey shows that people believe "knowing how to spend well" is far more important than having a lot of money in the first place. Out of a list of 22 contributors to financial success, having a lot of money came in twentieth.

For banks to stay relevant to their customers and ultimately improve their reputations, they need to address these shifting cultural and societal norms. They need to see themselves – and have their customers see them – as being in the financial health business.

There is much to learn from a similar transformation in the personal health arena, where the focus is shifting from treating sickness to promoting wellness.

For instance, a major problem in health care is getting people to take their medicine. Studies show that one-third of prescriptions are never filled, and patients with chronic conditions are noncompliant about half the time. Twenty years ago, most doctors would have thought their job was done once they wrote the prescription. Today, there are numerous initiatives, devices and apps to help promote compliance with drug regimens.

Too many bankers believe their jobs are complete once they have designed products and brought them to market. When a customer has a bad experience – overdrawing her account, for instance – many bankers are quick to blame the customer for not reading the fine print.

But if the outcome we seek is a financially healthy consumer, then bankers must see it as their job to eliminate those harmful experiences by creating better solutions to consumers' underlying needs and challenges.

It all comes down to the business model and how we define success. Take the health care industry. When hospitals are paid based on admissions, sick people are a profit center. As insurers shift their success measures and pay more for positive health outcomes, hospitals have an incentive to work harder to keep people well so they don't need to be admitted in the first place. The interests of patients and hospitals are aligned.

Too often, banks and their customers lack this alignment. Simply put, too many banks still make too much money at the expense of their customers, and it is one of the biggest reasons the American public has lost faith in them.

This dynamic is beginning to change, but not fast enough. Banks simply must figure out how to create business models built on the positive financial health of their customers. Their reputations depend on it – and so do their bottom lines.

Jennifer Tescher is the president and chief executive of the Center for Financial Services Innovation.