9 October 2017
Professor Jonathan Deacon
The banking sector will fail to restore customers’ trust within timelines currently expected by banks and regulators, a new article claims.
The analysis, published in Cogent Business & Management, sets out the challenge facing banks in overturning a “generation of management and staff who have an engrained profit-maximising culture” which led to the collapse of customers’ trust in high street banks beginning more than 30 years ago.
As new challengers enter the market, established banks must seek a significant cultural and ethical change if they are to win back the trust of valuable customers.
The article – written by Peter McCormack (Independent Governance and Risk Adviser, London, UK) and USW's Professor Jonathan Deacon – details how trust in the banking sector has been eroded. Individual high street bank branches used to rely on establishing trusting relationships with their customers, but when financial services were deregulated in the mid-80s this dynamic fundamentally changed.
Cultural distinctions between high street banking and investment banking narrowed. An aggressive, transaction-based approach of maximising profit overthrew the intrinsic risk management of traditional relationship-based high street banking.
‘High street banking’ became known as ‘retail banking’, and staff were incentivised to act more like salesmen than custodians.
The authors argue that this caused substantial damage to customers’ trust in their banks that has never been restored. And, at a time when emerging digital competitors unburdened by long-standing distrust are entering the market, the need for established banks to reclaim trust is more pressing than ever. But the authors claim that the banking sector currently underestimates the complexity of the issue, making ambitions of restoring trust in the near future unrealistic.
The article meticulously explores a number of sizable problems that must be met by banks in order to restore trust. Challenges include the need for educational investment, meaningful internalisation of regulation, and different leadership from board-level executives. Taken together, the article is calling for nothing short of a total philosophical realignment of the industry.
“While most financial service firms remain commercial organisations,” the authors write, “those in the business of high street banking need to attract, and retrain, staff for a vocational approach that recognises the unique place of the high street bank in society.
“To truly change the culture in high street banking, the industry needs to re-establish the banker-customer relationship, and, whilst making use of technical innovation, somehow re-engage with the customer and make them feel that they are at the centre of the relationship and not a number in the machine.”
The article, ‘Can trust be restored to high street banking: A twenty year challenge?’ published in the open access journal Cogent Business & Management, is free to read and download via this permanent link.
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