Consumer Trust in Financial Services Christine Ennew Centre for Risk, Banking and Financial Services

A “crisis of trust”

Conditions requiring trust A situation characterised by risk to the individual Interdependence – the outcomes for an individual are dependent on the actions of others The result is individual vulnerability Behaviour then depends upon confident expectations about the behaviour of other related parties Hence: –“A willingness to rely on an exchange partner in whom one has confidence.” (Moorman et al 1992)

Relevance to Financial Services Risk – inherent to the products but is compounded by consumers’ typically low levels of interest and understanding and the impacts of uncontrollable factors. Vulnerability – poor performing product can have a very significant impact on individual customers. Interdependence – intermediation is core feature of financial markets; compounded by widespread need for specialist advice.

Conceptualising Trust Depends on reputation of trustee (trustworthiness) and characteristics of trustor Two dimensions Low level (cognitive) will they do what they say they will do? reliability and dependability High level (affective) are they concerned about my best interests?

Some Empirical Evidence Christine Ennew Centre for Risk, Banking and Financial Services

Data Sources Survey Data collected since 2005 but in 2 distinct formats – CATI with detail on antecedents of trust (and replications in Oman, Malaysia and China) 2009 onwards – via YouGov, focus only on trust measures Not panel data, distinct representative samples Measurement structure confirmed – valid a reliable

Individuals more trusted than institutions

Substantial variation in active trust by institution type

Decline in active trust

Conclusions Christine Ennew Centre for Risk, Banking and Financial Services

Conclusions Importance of good measurement Consistency in findings over time –Brokers most trusted, credit cards and banks least trusted –Building societies in general have better position Trust in financial services is robust relative to comparator institutions; trust in FSIs in general much worse than trust in my FSI Consumers are more positive about low level trust than high level trust Demographic factors provide little insight

Implications Consumers who actively trust hold more financial products than those who are forced to trust (2.5 v 1.9) but note issue of cause and effect Risk that forced trust reduces product holdings and product consumption Individuals have less protection (lower savings, less insurance) and may be more dependent on government provided welfare Financial service providers are less able to cross sell without active trust