SVB’s collapse hasn’t affected trust in traditional banks, which poses a challenge for neobanks trying to enter the market.

SVB's collapse hasn't affected trust in traditional banks, which poses a challenge for neobanks trying to enter the market.

Trust, Banks, and the Challenge for Neobanks

In the world of finance, trust is a crucial component. Without trust, the entire banking sector would struggle to function. However, trust can be a fragile thing, easily lost and difficult to earn. This is a concern raised by Hsu, who believes that banks are falling short in providing just and fair services to their customers. He argues that this trend could potentially undermine trust, growth, and democracy in the industry.

To monitor the state of trust in the banking sector, the Office of the Comptroller of the Currency has proposed conducting an annual survey. The goal of this survey is to capture trends and drivers of consumer trust in banking. The survey results would inform policy making, as well as drive improvements in bank products and services.

Interestingly, despite occasional bank failures, trust in banks remains high. A report by Morning Consult reveals that 70% of consumers still trust banks to “do what is right,” even after the collapse of three regional banks. In fact, trust in banks actually increased in the aftermath of these failures. According to Jaime Toplin, a financial services analyst at Morning Consult, people were relieved that it wasn’t their own bank that failed, which reinforced their trust in their own institutions.

Trust in the financial services industry as a whole has remained consistent over time. Toplin explains that these relationships between consumers and banks are long-lasting, contributing to the stability of trust levels. It’s not simply a matter of consumers lacking alternatives, as even users of neobanks, digital-only financial service companies, have lower levels of trust in their institutions compared to traditional banks.

The reason for this disparity in trust could be attributed to neobanks being relatively new players in the market. Consumers are less familiar with their functions and uncertain about their longevity. Moreover, trust in digital-first services is generally lower compared to traditional institutions across the financial industry.

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Banks have the advantage of time and established relationships, making it challenging for neobanks to break into the market. Toplin asserts that neobanks need to convince consumers that they are reliable and can meet their needs. This requires an understanding of consumer expectations and effective communication to build trust.

In the coming weeks, we will explore how neobanks have navigated these challenges and successfully convinced customers to trust them.

In Other News

• Rebel, rebel: Harvard Business School professor Francesca Gino, known for her research on “dishonesty,” has been placed on leave after accusations of research falsification. Gino’s work challenges traditional norms and suggests that troublemakers are actually innovative leaders.

• Make it 100: Lawrence J. White, an economics professor, suggests extending deposit insurance to all depositors, regardless of the amount, to address the failure of banks caused by uninsured depositors. However, implementing 100% deposit insurance may face resistance.

• Dark money: Allison Herren Lee and Bruce Freed highlight the risk corporations face from their political spending, especially when it conflicts with their publicly stated positions. The use of “dark money” groups further amplifies this risk by reducing transparency.

• NDA: A viral TikTok video advising job seekers to explain resume gaps with the excuse of signing a nondisclosure agreement is debunked by ANBLE’s Orianna Rosa Royle. Employers are likely to see through this lie.

Trust Exercise

Building trust is essential not only in banking but also during the hiring process. According to a survey conducted by Gartner, slightly over half of job candidates trust the organizations they are applying to be honest. However, 44% of respondents admit to changing their minds after accepting a job offer. Failing to establish trust from the beginning can result in fewer accepted job offers and shorter employee retention.

Trust plays a significant role in the world of finance, particularly in the banking industry. While traditional banks maintain a level of trust due to their long-lasting relationships with customers, neobanks face the challenge of convincing consumers of their reliability. By understanding customer needs and effectively communicating their value proposition, neobanks can carve out a space in the market and build trust over time.

Stay tuned as we delve deeper into the strategies and experiences of neobanks in gaining the trust of their customers.

Author: Eamon Barrett, [email protected]