At the heart of financial services is trust, something which collapsed after the catastrophic events of 2008. And yet the industry didn’t change in the way people were expecting. Can technology-driven new entrants to the sector finally begin to repair the confidence that the public needs to have in it?
Ten years after the near collapse of the global financial system and the subsequent ‘Great Recession,’ it has become apparent that there is still an ongoing crisis of ‘trust,’ especially in the Western world. Whether it is financial services, wider business, government or journalism, there are record levels of distrust across almost every major institution that underpins society. Not for nothing did Dictionary.com name “misinformation” as its word of 2018 – not just a reflection of the ‘fake news’ phenomenon, but also of the general wariness that many people feel about the news, data and stories they’re receiving and consuming.
Yet many of the biggest companies that have emerged since 2008 rely deeply on trust. In today’s world, people allow strangers to inhabit their homes, drive their cars, even walk their dogs.
And not only do we trust strangers, we also appear to be relatively happy to trust faceless computers, and willing to share our most personal information with them online. A 2017 study by YouGov reported that 48% of millennials feel comfortable sharing their data with companies that they do business with, as long as it leads to cost savings – the highest percentage of any generation surveyed.1
Trusting Mr Banks?
This ambivalence around trust is especially apparent in financial services. The idea of banking has always been premised on the notion of security. Traditionally, banks have used their structures to showcase their ability to keep money safe: classical buildings with vaults, security at the door, tellers and other staff dressed in uniforms, all to project an image of stability and safety.
But the events of ten years ago significantly damaged that vision for many people. And now, new entrants in this sector – many driven by technology and unlikely to have a physical presence – now must answer a new question: how do you communicate security – how do we trust you? – when you are offering an intangible service?
According to the 2018 Edelman Trust Barometer, for the past five years technology has ranked as the most trusted industry in the world, financial services the least.2 This poses two interesting questions – how do you rebuild trust in financial services generally, for a public still wary from the events of 11 years ago? And what is technology’s role within this?
For a slew of online players, whether they’re banks, micro-investment firms or even AI-powered savings accounts, the answer to that lies in creating a new language, actively listening and responding to customers and seamless user experience, to communicate their integrity, how secure they are and, perhaps most importantly, their sense of inherent trustworthiness.
21st Century Community Banking
UK-based Monzo is one such startup. Its manifesto reads, “We’re building a new kind of bank. A bank that lives on your smartphone and built for the way you live today. By solving your problems, treating you fairly and being totally transparent, we believe we can make banking better.”
The digital-only platform claims to be delivering this by building a product with their user at its core – but with 21st century concerns front and center. Monzo’s users are able to deposit and withdraw money, pay businesses and peers directly, and even send money internationally, all at reduced fees. Crucially, the brand has also invested heavily in building its “Monzo Community,” a forum that facilitates a flow of feedback from their customers, which it can then use to adapt constantly in response to those questions, concerns and desires – listen, tweak, test, now deliver. In this way, Monzo has managed to grow organically, spreading via word of mouth and reaching half a million users in a couple of years.
Digit follows a different model, differentiating itself from banks by positioning itself as an automatized solution to the struggles that people have when it comes to budgeting. Digit says the platform “analyzes your spending and automatically saves the perfect amount every day, so you don’t have to think about it.” The brand doesn’t use the word “bank” to describe its service – rather the emphasis is on the outcome it provides: savings for people’s short-term goals.
Though different in the services they provide, Monzo and Digit are using similar positionings in their efforts to capture younger users. Both make a lot of being startups, emphasizing a different way of doing things, as compared to older financial services brands. The use of simple and more informal language, as opposed to jargon. Easy-to-use, mobile-first platforms. The fact that they are (or at least claim to be) agile and transparent in their offerings. These verbal and visual tactics convey the “newness” of these services, setting them apart from more traditional financial establishments.
Investing for the masses
One consequence – maybe “fallout” is a better word – from the financial crash of 2008 has been the rise of populist movements around the world. Judging from events such as the election of far-right candidate Jair Bolsonaro as president of Brazil, and the gilets jaunes movement in France, this phenomenon is unlikely to disappear any time soon.
Powering many of these movements has been a sense of inequality, both of income and more broadly between social classes. There exists a widespread notion that a ten-year period of stagnating wages but rapid growth in asset values has created a situation where any economic gains of the past decade have gone unequally to a small slice of the population.
Whatever your belief, it is clear that there is a growing wealth gap in many countries between higher-rate taxpayers and those in lower economic brackets. Take the US. According to the 2018 US Bureau of Economic Analysis, there is a vast difference between Americans who save and those who do not. The top 25% of the population has more than $200,000 stashed away, as compared to the bottom 30% who have $5,000 and less to call upon in their retirement.3 There is also a divide in how people grow their wealth. In India, for example, between 2002 and 2011, varying investment returns accounted for 84% of the increase in inequality of wealth held in equities.4
If we accept the premise that increasing the wealth of an individual depends on both having the funds to invest and access to investment providers, then it becomes clear why investment is an activity only available to the already wealthy. However, a number of startups are challenging this assumption.
US-based Robinhood reflects its anti-establishment nature in its name, describing its mission as nothing less than “democratizing access to the American financial system.” The micro-investing platform allows users to sign up for free, and there is no minimum cost to invest – a key differentiator from most firms, which generally ask for a minimum primary deposit. The company makes good on its promise to bring the middle class into being able to invest, providing easy to understand graphics to illustrate stock listings and financial news in their app. Established in 2013, Robinhood has seen a huge jump in customers, growing from five to six million users in the past 12 months.
Acorns is another American platform that targets first time investors, with remarkable success: over four million people currently use the service. The micro-investment app is based on the idea that even by investing pennies, people can see a return: “We [are] led by the belief that anyone can grow wealth.” Acorns enables users to invest spare change by rounding up the sum of each purchase made on an individual’s debit or credit card, and then automatically investing that sum. For example, that $4.91 latte becomes an even $5, with $0.09 moving directly to your investment fund. The service also allows you to “earn money,” by partnering with retailers who will give money to the customer’s Acorns fund when they make a purchase. And again, there’s no minimum initial investment.
In addition to their no-cost entry, both Acorns and Robinhood feature education as a prominent part of their brand. Each offers short blog posts on their apps, such as “Investing 101,” giving consumers facts on the importance of investment, how to start and then succeed at it.
Money does you good
Another, less remarked upon, reason why consumers might not trust financial services providers is their ethical – or lack of – investment policies. Over the last decade, the wider public has started to become more aware that their (and their proxies’) investment decisions can in turn finance industries that they might not approve of: the gun trade, or oil and gas, for example.
This awareness is starting to translate into pressure on investors to, at a minimum, take ethical considerations into account when making their investment decisions. The US Forum for Sustainable and Responsible investment recently reported that “investors now consider environmental, social, and governance factors for $12 trillion of professionally managed assets… a 38% increase from 2016.”5
Diversity is another issue that investors and financial services brands are recognizing has to be grappled with, especially when it comes to funding startups led by entrepreneurs from non-traditional backgrounds. As reported by Wired, “All-female startups received just 2% of venture capital funds in 2017, while all-male teams received nearly 80%, according to data gathered by the VC and private equity database PitchBook. People of color have similarly been left out.”6
So in a world where a company’s purpose is more important than ever before, new entrants to financial services are setting themselves apart by creating investment options that allow consumers to align their financial goals with their moral compasses.
Take Canadian company Wealthsimple, which offers “Responsible Investing” and “Halal Investing” options for its users. The Responsible Investing fund has within it portfolios investing in companies with low carbon emissions, that support gender diversity and promote affordable housing. Meanwhile the Halal Investing principles are tailored specifically to Muslim investors’ interests, with funds screened by a third-party committee of Shariah (Islamic law) scholars; there is “no investment in companies that profit from gambling, arms, tobacco or other restricted industries.”
Ellevest works in the reverse: rather than investing in specific causes, the company targets female investors as the customer group most in need of building up its wealth. The startup cites the gender pay gap as the essential reason for women needing to invest more than their male peers: “Because of the gender pay gap, [women] have about $320,000 less when they retire at 67… so [their] money could last six years less than [a man’s], even though she’s likely to live three to five years longer.” The company also examines other problems that women face, using their magazine as a platform to cover issues such as “divorce inequality” and “paid family leave” that have implications for female financial wellbeing.
An invisible hand
When considering the role of technology in rebuilding trust in financial services, it’s impossible to ignore the big tech companies. Google, Apple, Facebook and Amazon have all made in-roads into different aspects of consumer finance a process which won’t be stopping soon.
Amazon was one of the first to innovate in this space, thanks to introducing one-click ordering as early as 2000. Facebook incorporated peer-to-peer payment into their messenger app in 2015. ApplePay is now available in 33 countries worldwide since its launch in 2014. And in August 2018, Google announced it was partnering with four Indian banks to offer instant, pre-approved loans to customers right within Google Pay in a matter of seconds.7
China’s equivalent big tech companies are doing something similar. Tencent has built payment functionality directly into the WeChat platform, a smart move in recognition that a significant proportion of Chinese citizens spend over four hours daily on the app.8 As Kathy Xu, the founder of Capital Today Group which oversees funds that invest in emerging Chinese tech companies, says, “Consumers are lazy. They are already on WeChat, and they don’t want to click away.”
This speaks to a key building block of trust for financial services in the future – seamlessness. These applications, introduced upon platforms with already-high consumer engagement, create a level of widespread expectation of ease of use that extends to all financial companies.
Of course, what links these platforms is that they have a built-in level of trust from their customers, thanks to the other services they provide – and it is this trust that is being relied upon as these brands move into financial services. New entrants to the sector – and indeed older players – might find they have to work much harder to be granted the same levels of acceptance from their users.
One thing remains clear: whether trust comes or goes, financial services brands, old and new, simply can’t do business without it.
The building blocks of finance
While financial transactions are a near-universal human experience, the way they are conducted is evolving – fast. Here is a round-up of some easy ways financial services brands can build trust in an age of rapid change:
Be seamless: As use of online platforms and networks increases, integrating easily into already trusted services means financial brands can extend their range.
Be straightforward: Brands can start a conversation by using easy-to-understand language that speaks to consumer needs. Fintech companies are already going a step further, by providing education to their users.
Be empathetic: To create an emotional connection with users, brands must show a true understanding of past consumer issues and speak to the ways they can resolve these problems, whether that’s through technology, or a business model.
Be good: Increasingly people flock to brands who they believe are making a positive difference in the world. Services that are able to align money-building with social good gain consumer trust by showing people where their money is going.
2 - 2019 Edelman Trust Barometer
3 - 1 in 3 Americans have less than $5,000 saved for retirement—here’s why so many people can’t save
4 - Snap Fact: How investments impact wealth inequality
5 - Sustainable investing risks becoming a victim of its own success
6 - Tech's ethical crisis over venture captial goes beyond Saudi Arabia
7 - Google Teams With Banks to Launch Digital Lending for India
Originally published in Magpie: Issue 4
