Trust Pays Off

USAA, The direct-writing insurance company that specializes in handling the auto and property-casualty insurance needs of military families, has built a reputation over the years as the most trusted financial services firm in the United States, and probably in the world. The USAA culture is built around empathy and reciprocity, where the corporate edict is always to treat the customer the way you’d want to be treated if you were the customer.

One thing the company has found is that empathy given is empathy returned. More than 20 years ago, after the first Gulf War ended in 1991, USAA sent out refund checks to several thousandof its customers who were returning from military service in the Middle East. Obviously, these customers couldn’t have driven their cars back in the United States during the several months they were posted overseas, so USAA suspended the charges for the premiums during the time their soldier-customers were away and proactively sent out thousands of refunds to them when they returned home, at a cost to the company of several million dollars.

But reciprocity is a two-way street. Nearly 2,500 of these customers sent their refund checks back to USAA, with some urging the company just to be there “when we need you.” So here’s a question you should be asking yourself: At your own financial institution, under what circumstances would your customers ever send money back to you?

Watching out for your customers’ interests

Martha Rogers and I opened our book “Extreme Trust: Honesty as a Competitive Advantage” with this story in order to illustrate the power of reciprocity and the benefits of proactively watching out for your customers’ interests. We think consumers everywhere are beginning to expect more from companies than simply that they not cheat or steal. The world is more social, more interconnected, and more transparent than ever. Consumer expectations are rising, and this means financial services firms throughout the Western world are going to be held to higher and higher standards. When a company is proactively trustworthy, Martha and I call it “trustable.” In addition to things such as proactive refunds, trustability means preventing a customer from making a mistake, even when that mistake would generate more profit for the business. And more and more businesses are doing this. For example, Amazon will warn you if you already bought a book you’re about to order again. The e-cards company Jacquie Lawson will email you to let you know that your annual renewal fee is about to be charged to your credit card. Microsoft reminds its enterprise customers if they haven’t redeemed
the free IT staff training vouchers they received when they purchased their new SQL server. And the agrichemicals company Syngenta sends information packets to potato farmers with advice on the best chemicals to use for different pests, even when some of those chemicals are only available from the company’s direct competitors.

Financial services executives would be wise to start paying attention to this trend, because in our newly interconnected,
radically transparent world, trust is becoming more important—but consumer trust in financial services has rarely been lower. Their lack of trust stems partly from the financial industry abuses and self-serving actions that were exposed during the financial crisis, mostly on the part of mortgage lenders and investment banks. But, whether right or wrong, there is also a sense out there that if a retail bank or credit card company could make a quick buck by tricking a customer, it wouldn’t hesitate to do so.

There is a public perception that one of the reasons retail banks heavily promoted the increased use of debit cards, for instance, was that debit card usage dramatically increased the number of unintended overdraft fees that could be charged to consumers. And some people are convinced that some banks use “courtesy overdraft” services to increase their nonsufficient fund fees even further, by encouraging their customers to overdraw and incur a fee for it.

In the public eye, credit card companies do not have a reputation for trustability either. The entire premise behind most credit card operations is to profit by taking advantage of a consumer’s very human urge for instant gratification—even though anyone over the age of 12 knows that instant gratification is not always in his or her own best interest. Think about it: For a credit card issuer, the most valuable customer of all is a marginally sophisticated borrower who can never resist temptation, rolls his balance from month to month at a high interest rate and often incurs late fees.

When you are trustable, you are more competitive

For financial services firms, the lack of customer trust will soon represent an existential threat, as rapid technological change transforms the category. Every day seems to bring another high-tech challenger to threaten some aspect of traditional business, whether it’s PayPal or BitCoin, Moven, Simple, Flint, GoBank or others. If a company doesn’t have its customers’ trust when all these new business models come knocking, then its only real defense is to duck and cover. Trustability provides a business with a better chance to adapt and survive because, when customers decide that a company is genuinely trustable, they want it to succeed, the way USAA’s customers want it to succeed.

For an example of how critical customer trust is in this kind of environment, consider the different fates of two high-tech companies, both of which have been tossed around over the last 20 years by severe technological upheavals. AOL and Apple were both launched at the dawn of the Information Age, but Apple is today one of the world’s most valuable enterprises, while AOL is a miniscule fraction of its former self, about 1 percent as valuable as it used to be. One factor explaining a great deal of the difference is that Apple has the trust of its customers, and AOL does not. From the very beginning, Apple based its entire business on the user experience, obsessing over the user interface of each of its products. This meant that as business models continued to appear (and disappear) at Twitter speed, Apple was able to re-invent itself over and over, moving from the personal computer business to the music business, then to mobile phones, and then to tablets. And with each self-renewal, Apple’s customers flocked to it again. Yes, no doubt Apple is highly innovative, but with each new innovation, its customers want the company to succeed.

AOL, by contrast, never really focused on the user interface or the customer experience at all. It has always focused squarely on its short-term profits, and it maximizes its immediate financial results by taking advantage of customer mistakes and oversights whenever possible. AOL’s reputation for making it difficult to unsubscribe from the service is legendary, and it has been criticized for looking the other way while customers pay higher fees than they need to pay. One former executive recently even confessed that “the dirty little secret at AOL is that 75 percent of the people who subscribe to AOL’s dial-up service don’t need it.” The upshot of this was that while Apple prospered and continually reinvented itself in an extremely turbulent environment, AOL could not even make the relatively simple transition from dial-up to broadband.

Today, consumers lack trust in banks

The lesson for banks, credit card issuers and other financial services firms could hardly be clearer.

Over the past couple of years, I’ve personally met with executives at a dozen or more large retail banks and credit card companies, and at nearly every one of these companies one of the key barriers they see when it comes to retail growth and customer loyalty has been the apparent lack of trust that consumers show for financial services in general. Wisely, several of them, including more than one global financial services enterprise, have launched or are launching serious efforts to become more trusted in the eyes of their customers. I believe the low level of consumer trust in today’s financial services firms actually creates a window of opportunity. A smart bank could seize this moment to use customer trust as a competitive advantage. But it will require more than lip service and clever advertising. Seizing the high ground of customer trust will require that a bank or credit card company take visible steps, creating “proof points” for the idea that it always works to protect its customers’ best interests.

What does a trustworthy bank look like?

It’s not hard to imagine how a bank with high trustability would function. At Ally Bank, customers are proactively reminded if they have funds in an account that could be earning higher interest. No depositor is ever charged for moving money from a savings account to a checking account in order to cover an overdraft, the bank reimburses customers for ATM fees charged to them by other banks, and on every product page at Ally’s website its customers can read the reviews and comments of other customers.

And First Direct, one of the first phone-and-online banks in the United Kingdom, offers a payment for all new customers
signing up. But more than that, the bank also will pay you another £100 (about $168) if, after banking with them for at least six months, you decide to leave the bank! Nor is it difficult to imagine how a genuinely trustable retail credit card company would operate. Among other things, it would:

  • Counsel its customers to spend wisely and judiciously (the way utility companies encourage conservation).
  • Encourage a customer to set a monthly spending budget, and then text him or her regularly with updates on their spending each week.
  • Not earn very much from late fees (which would indicate a flaw in the business model).
  • Provide incentives to customers who pay down their balances.
  • Help customers in their efforts to save more and improve their financial well-being, perhaps by putting money aside in a savings account, as and when spending occurs.

We’re beginning to see some glimmers of card issuers trying to make this kind of thinking work. Discover’s Motiva Card, for instance, allocates some of its “cash back” rewards program to an incentive for simply paying each month’s bill on time. And at one point (before the financial crisis), the United Kingdom’s Barclaycard considered an offering that would reduce a customer’s interest rate as he or she reduced the balance. But adapting to the requirements of trustability may be harder for a credit card issuer than for a retail bank for the simple reason that it might be more difficult to figure out how to make money from more customer-friendly activities. It will probably require giving up some of the marketing froufrou in order to let consumers choose how their cards are actually paid for.

Last year Citi launched its Simplicity Card, which doesn’t charge late fees or penalty interest rates. But the Simplicity Card doesn’t offer miles or points or cash back, either. That’s because the simple truth is that credit card companies offering miles and other benefits are really just giving a customer’s own money back to him or her.

It’s all about empathy

If you’re having difficulty getting your financial mind around the concept of proactive refunds and refusing to make money from customer errors, just remember that trustability is based on a very simple principle: empathy. Trustability is really just another way to talk about empathy. When you have empathy, you feel the other person’s hurt. As a business, you put yourself in your customer’s shoes, and if the customer is about to make a mistake that will cost money unnecessarily, or to do anything else that isn’t in his or her own interest, then you reach out to provide empathetic advice and counsel.

Empathy is a deeply human trait. A person who has no empathy, who doesn’t feel another person’s hurt, is called a
psychopath. That’s the definition of the term. And for a financial services company, empathy is the driving force behind customer insight. The whole idea of making a company over into a more customer-centric firm is based on trying to see the business from a customer’s own perspective, to understand what it’s like to be a customer.

There is no doubt that being trustable will cost money in the short term. But it can also buttress your business against all the disruptions and conflicts that are caused by rapid technological innovation and globalization. And I think what financial services firms will find is that if they begin to demonstrate empathy toward their retail customers, those customers will have more empathy for them, the way USAA customers obviously have empathy for USAA.

Don Peppers is the founding partner of Peppers & Rogers Group, the customer-centric management consulting firm, Stamford, Conn. With co-author Martha Rogers, Ph.D., Peppers has written nine marketing books that collectively have sold over 1 million copies in 18 languages. Their latest book is “Extreme Trust: Honesty as a Competitive Advantage.”

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