Seven years after the financial crisis of 2008, we continue to see residual damage to both the economy and the American psyche. Perhaps nowhere has a mistrust of banking and financial services remained as high, however, as it has among Millennials.
The 2015 Makovsky “Wall Street Reputation Study” found that more than two thirds (69%) of U.S. Millennials — adults between the ages of 18 and 34 — reported a lack of trust in financial institutions, compared to consumers age 35 to 54 (59%) and 55 and over (54%).
This is a big deal, because Millennials are a larger group than Baby Boomers, and now represent $1.3 trillion in buying power in the U.S. and $10 trillion globally. Banking and other financial services stand to suffer due to this mistrust and Millennials’ influence on people. Also, consider that savings, home buying, investing and financial planning are now beginning to come into focus for Millennials.
One of the reasons why Millennials’ trust in financial institutions lags behind the rest of the population could be the lingering effects of the financial crisis and recession.
When asked, “Over the past seven years, how has the financial crisis impacted your lifestyle?,” U.S. Millennials reported that they had been negatively impacted more than consumers age 55 and over. Top responses from Millennials were: not being able to save, or living paycheck to paycheck (33%) significant spending cut-backs (29%) and financial hardships for them and their families (27%).
Millennials also reported a significantly lower loss in their retirement accounts compared to other age groups. This impact on lifestyle and the recent pains of hardship are chief reasons that more than two-thirds (78%) of communications, investor relations and marketing executives surveyed said the financial crisis continues to have a major effect on stakeholders’ perceptions of their companies.
While this age group embraces the Internet and leverages the latest in mobile technology, they remain equally concerned about the security of their personal financial data. In fact, the number-one reason why Millennials would be likely to change to an alternative digital financial services provider was due to unauthorized access and theft of personal data (79%).
Fraud Prevention Becomes Top Concern
Keeping negative news about a financial services company to a minimum could once generate a good reputation. Today, protecting personal data and preventing fraud has become critical for financial institutions to retain customers and rebuild trust.
Forty-two percent (42%) of U.S. Millennials feel that failure to protect personal information and financial information are the biggest threats to their financial service company’s reputation. This threat is also felt inside financial institutions, where 83% of executives at financial services firms agree the ability to combat cyber threats and protect personal data will be the biggest issues in building reputation over the next 12 months.
Mounting Cost of Trust
While the economy has improved, this undertow of consumer trust issues and growing competition is weighing on the financial services industry. Executives in charge of marketing, communications and investor relations reported that they have lost 20% in revenues in the past year due to continued reputation and customer satisfaction issues.
Financial institutions should take heed and develop a new approach for this segment of the marketplace, as the competition remains poised to fill the gap with services more in line with Millennials’ needs and expectations. Millennials (49%) would be much more likely to consider banking and financial services from digital alternative providers like Google, Apple or Amazon if available, compared to consumers’ age 35 to 54 (37%) and age 55 and over (16%).
In fact, 68% said the availability of advanced and mobile technology for improved financial service functions would make them more likely to switch providers. Also, a higher percentage of Millennials reported that not keeping up with new technology and service innovations was a major threat to their current financial service firms’ reputation.
Traditional banks and other financial services firms still have an advantage when it comes to whom consumers trust to keep their personal information and privacy safe. Today’s consumers ranked traditional financial institutions higher by a wide margin over new online providers.
A larger percentage of consumers however, are untrusting of any organization, having the ability to protect data: Bank/brokerage, insurance, or credit card company (33%), U.S. Government (IRS, Social Security) or U.S. Postal Service (13%), Current healthcare company (4%), Online wallets (PayPal, Google Wallet, Apple Pay) (4%), Retail chain or small businesses (4%), All other organizations (3%), none of these organizations or companies can be trusted (39%).
Preparation is Paramount
Developing an advantage in cybersecurity and special programs to safeguard personal information would be a game-changer for financial services firms to win back trust and retain customers. Regardless, companies need to be ready to respond and recover, while keeping customers their top priority once a data breach occurs.
Many experts believe that for financial services, data breaches are crises waiting to happen. Given this, there is no excuse for financial services firms to be unprepared. An organization should have a crisis communication plan in place before an incident occurs, including what needs to be said and when. Internal consensus should be achieved before the first media call arrives, and third-party experts should be briefed on the company’s preparations in advance.
With this blueprint, leadership can act with purpose and dispatch in the heat of battle. Preparedness, put simply, is the difference between success and failure in the struggle to preserve customer trust after privacy has been breached.
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Scott Tangney is executive VP and financial services practice leader at Makovsky.