Since the Bank of England reduced its base lending rate to an historically low 2% on Thursday UK media commentary has been dominated by a ‘will they, won’t they’ analysis of which banks are planning to pass on the full value of the 1% cut to their mortgage customers and which are not. At the time of writing, those passing on the full rate reduction are in the minority but it is clear that this issue will be played out in the court of public opinion as much as behind the closed boardroom doors of our leading mortgage providers. After all, public (and Government) pressure has already seen two of our leading lenders – Nationwide and Halifax – remove the ‘collars’ that were designed to prevent their bare-rate tracker products from dropping below a certain minimum level.
With few outside friends it is a brave bank CEO that is prepared to stand up to the inevitable criticism that will follow any foot dragging on this issue, however solid arguments about protecting savings rates or the need to repair a broken balance sheet may be. Regaining control of the economics of their business will be an uphill journey.
I have written in the past about how the banks – particularly those that have been part of recent Government bail-out measures – need to accept the new reality of their circumstances, and recently consolidated these thoughts into a contribution to a wider series of essays published by Edelman to coincide with the ‘Outlook 2009′ event referred to in my previous post. The full text of my contribution is below, and the complete Edelman document, titled ‘Public Engagement in the Conversation Age’, can be accessed here.
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No industry has felt the cold blast of the credit crunch more than the Financial Services sector. Whilst the turmoil and upheaval in the global Banking system has dominated recent newspaper headlines,the industry in general is experiencing a collective collapse in Trust and confidence which has also affected Insurance companies, Asset Managers and Hedge Funds in equal measure. Having gradually reduced to no more than a ‘hygiene factor’, suddenly Trust is once again a commodity to be cherished, protected and preserved.
To some extent the ’sudden’ collapse of Trust in the Banking system – and indeed in our established Financial Institutions generally – has been long coming. For the last decade, Edelman’s Trust Barometer has tracked the growth in credibility of peer-to-peer Communications at the expense of the top-down, CEO-led programme and, what we see today, is merely a practical application of that trend. What is beyond dispute is that Trust in the Banking industry has all but melted away – not just amongst consumers but most damagingly (and most tellingly) within the market itself.
This collapse in Trust has coincided with – indeed perhaps even been caused and/or exacerbated by – the new Digital Democracy we reference elsewhere. With the internet placing power in the hands of the Citizen as never before, this is the first recession of the true Digital Age. The challenge the industry now faces is to overcome the current negative perceptions and re-build Trust.
The first lesson that needs to be heeded is that life, as we have always known it for the banks, has changed forever. So far as the media is concerned, every pound the banks spend comes out of ‘our’ pockets – in the current climate the normal rules of Business no longer apply and the banks’ usual licence to operate has, effectively, been suspended.
Events which were fully justifiable in the past (and can arguably still be justified now) have to be considered in the light of a new reality – that ‘our’ money is paying for them. HBoS saw this principle in action in early November when it was fiercely criticised in the media for hosting two staff events. The reality is that the banks do still need to motivate and reward their staff. But the perception of massed ranks of bankers indulging in lavish celebrations as we head into a recession, and as the taxpayer digs deep to bail them out, is one that the banks have to take great care not to foster.
What of the rest of the Financial Services industry? Sitting next to the banks on the naughty step, and finding itself cast in the unwelcome role of chief scapegoat for the collapse of the Financial world as we previously knew it, is the Hedge Fund industry. Now most informed observers recognise that Hedge Funds play an important role in the Financial Markets. Furthermore, the leading participants in the industry are some of the UK’s most active philanthropists, contributing substantial sums to charities in both the UK and globally.
But with a few notable exceptions, the industry has on the whole been poor at engaging with a wider group of external stakeholders. This has allowed prejudice to become accepted fact, with the result that the industry now finds itself short of friends when they are most needed. There is a clear risk of an excessive regulatory response to recent issues, borne of the ’something must be done’ school of policymaking, that could curtail the activities of one of our most innovative financial industries. Once again, negative perceptions lead reality.
Set alongside the Banking sector and the Hedge Fund industry, the insurers have – with the very notable exception of AIG in the US – largely managed to avoid the most visible impact, and consequently the high profile fallout, of the Credit Crunch. The impact of the collapse in equities will undoubtedly feed through into the pensions sector but, again, to date this industry has managed to remain largely – though not exclusively – on the periphery of the debate.
The Financial Services industry finds itself at a key point in its continuing development. There is little doubt that the next twelve months are going to present major challenges to Communicators in the sector but this is not the time to adopt a bunker mentality. It is clear that stakeholders will be asking searching questions of our banks, Insurers and those that manage the wealth of the nation.
The organisations that emerge strongest from the economic downturn will be those that are most able to reach out to, and empathise with, the man or woman in the street. They will recognise the role of the internet and social media and adapt their communications strategies to address these channels effectively. And they will embrace the changing nature of Communications and take advantage of the collapse in traditional hierarchies.
The restoration of Trust between Financial Institutions and their customers is not something that can be achieved overnight. Management must be prepared to invest not only financially but in particular in devoting time to repairing relationships. It is well known that ‘nature abhors a vacuum’ and, in the absence of any engagement from the industry or individual firms, our new breed of Citizen Consumers will draw their own conclusions.
