Banking StandardsWritten evidence from the Question of Trust and the Financial Services Research Forum
The Financial Services Research Forum (FSRF), based at the University of Nottingham, has been undertaking research on trust in UK Financial Services since 2003 and has been collecting data on the subject for some 8 years. The associated research has been undertaken by academic staff at the University of Nottingham and associated institutions. Since 2009, the work on trust has also been complemented with a series of studies on the related issue of fairness. Most recently, the FSRF has partnered with the Question of Trust (QoT) to explore further opportunities for the measurement and analysis of consumer trust. This partnership brings together the research base of FSRF with the industry-based, campaigning expertise of QoT to try to encourage greater industry focus on the need to engage with the types of business practice that have been identified as driving organisational trustworthiness and consumer trust.
Key questions posed by the Parliamentary Commission on Standards in banking are outlined below and accompanied by a summary response. A series of published and unpublished documents which are of relevance to the summary answers is provided at the end of this document.
How can we measure trust in UK banks? (see Ennew and Sekhon (2007) for more detail)
There have been many different approaches to measuring trust. Some of the more high profile measures adopt a relatively simplistic approach which asks customers directly whether they trust or not. Where the response requires a simple “yes” or “no”, the results can often provide appealing headlines but do not reflect the richness or complexity of the underlying construct. A more common approach (see for example, the Edelman Trust Barometer) asks directly about levels of trust but on a graded scale). Our approach is to try to recognise that trust is a complex construct, and to acknowledge the differences between trust (the consumer belief) and trustworthiness (the reputation of the organisation). We also recognise that trust may be cognitive (focused around dependability and reliability) and affective (focused around care and concern). Specifically, our current approach uses 6 questions to measure trust, of which 3 measure cognitive trust and three measure affective trust. The use of multiple items enhances the reliability and validity of the measurement. And the robustness of our approach to measurement has been statistically validated.
How have levels of trust in UK banks changed over the past 5 years?
We have two distinct sets of evidence. Both measure trust using scaled responses to multiple items—thus measures of trust are an aggregate of responses to a series of statements which are believed to reflect the underlying construct of trust. The statements themselves were developed drawing on existing literature and extensive scale development work.
The first set of evidence comes from an annual telephone survey conducted from 2005 to 2009 which measures trust in the respondents own financial services provider (See Ennew 2009 for a summary). This suggests that levels of trust are remarkably stable over time, although there is variation across types of financial service provider with banks tending to receive some of the lowest trust ratings. It is worth noting that trust is an essential part of a relationship and some degree of trust is necessary for a financial services relationship to exist. Moreover as an underlying belief we would expect trust to display some durability—an established belief is not easily undermined.
The second set of evidence comes from an internet survey conducted between late 2009 and the present. This used similar measurement to the surveys discussed above but sought to contrast trust in the respondents own provider with trust in the industry in general (see Ennew, 2011, 2012b). Again, the evidence points to a surprising level of stability in overall levels of trust. Trust in financial services providers in general is significantly lower than trust in the respondents own provider and banks are clearly amongst the lowest rated financial institutions. These surveys also draw attention to the idea of forced versus active trust. Forced trust reflects the idea that individuals may trust, not because of any positive assessment of their relationship with a financial services provider, but because they have no choice. This is contrasted with active trust which is a positive belief about the quality of the relationship with a financial services provider. The research points to an increase in the proportions of consumers who might be classed as “forced trustors”.
Further analysis of the internet survey data was undertaken for the Question of Trust Campaign and particularly to develop a measure of trust which, in contrast to the FSRF measure, focused on consumer trust in the industry as a whole. This measure—the Money Trust Index—highlights the low levels of consumer trust across all sectors of the industry although banks do attract some of the poorest ratings.
What are the key drivers of any changes in trust in UK banks that you have identified? (see Sekhon et al)
Our research has focused on financial services providers generally rather than just banks. Our research suggests that consumer trust depends significantly on the extent to which providers project a reputation for trustworthiness. In turn, reputation for trustworthiness is dependent on aspects of business practice and specifically:
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Benevolence |
The extent to which an FSI demonstrates that it is concerned about the interests and needs of its customers. |
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Integrity |
The extent to which an FSI is honest and consistent in what it does from a customer perspective. |
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Ability/Expertise |
The extent to which an FSI is seen as having the necessary skills and ability to deliver its services from a customer perspective. |
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Shared values |
The extent to which consumers believe that an FSI has values similar to their own. |
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Communications |
The extent to which an FSI communicates well/effectively from a customer perspective. |
Failings in any or all of these areas (and there are many examples) will only serve to reduce trustworthiness and consumer trust.
Why does trust in banks matter for the UK economy?
Trust is fundamental to the effective operation of a market economy. In the specific context of financial services, intangibility, product complexity, and the long term nature of many products mean that customers face high levels of risk in making purchase decisions; they will often have difficulty in judging product performance and thus will need to trust financial services organisations to offer products of an appropriate type and quality.
Consumers face risk in relation to most financial services, but the concern is perhaps greatest in relation to savings and investment products where the risks are associated with the poor performance of the product and a poor return. These outcomes could arise from the inadequacies of the product but could equally be due to misfortune—and consumers may struggle to distinguish between the two. Risk is inherent in the product but is compounded by consumer’s typically low levels of understanding and the impacts of uncontrollable factors. Associated with this element of risk is consumer vulnerability—since financial services can and do have a significant impact on the consumer’s well-being, a poor performing product can have a very significant impact on individual customers.
Clearly then, financial services are of considerable importance but their risky nature makes consumers vulnerable to detriment. This is complicated by the fact that the functioning of financial markets means that in general, individuals need the services of a specialist intermediary to deal with their financial needs (notwithstanding the development of some peer-to-peer services). More significantly, product variety and complexity mean that the customer is dependent on a financial services organisation for advice and the more limited the customers understanding of financial services, the greater the dependence on a financial services provider or a financial adviser. In the absence of complete information, that relationship relies on a degree of trust to function effectively.
Put simply, if consumers do not or cannot trust the intermediaries with who they have a relationship they may partially or wholly withdraw from the market. In a context in which individuals are expected to assume much greater responsibility for their own welfare, this could result in significant consumer detriment (inadequate protection against risks, inadequate savings for retirement) not to mention possible increased government expenditure to protect or support those who have inadequate financial provision for themselves or their families. Costing the direct financial consequences of lack of trust is difficult, but figures quoted in the Thoresen Report, for example, suggest that an estimated cost £15 billion is possible. Conversely, if enhanced levels of trust resulted in all UK households increasing savings by £1.50 per day, then the corresponding benefit would be in the region of £15 billion.
Relevant Publications
Ennew, C T (2012b) Trust: Trends and Analysis—September 2012, Financial Services Research Forum, University of Nottingham (available at http://www.nottingham.ac.uk/business/forum/publications.aspx )
The Money Trust Index—A Report for the Question of Trust Campaign—July 2012, Financial Services Research Forum, University of Nottingham (available at http://www.nottingham.ac.uk/business/forum/publications.aspx )
Devlin, J and Waite, N (2012) Fairness in Financial Services: Sector Analysis—July 2012, Financial Services Research Forum, University of Nottingham (available at http://www.nottingham.ac.uk/business/forum/publications.aspx )
Sekhon, H, Ennew, CT, Kharouf, H and Devlin, J (2012) Modelling Trust and Trustworthiness: Influences and Implications, Unpublished Paper.
Ennew, C T (2011) The Financial Services Trust Index, 2011-Q1, April 2011, Financial Services Research Forum, University of Nottingham (available at http://www.nottingham.ac.uk/business/forum/publications.aspx )
Ennew, C T (2009) The UK Financial Services Trust Index, 2009, Financial Services Research Forum, University of Nottingham (available at http://www.nottingham.ac.uk/business/forum/publications.aspx )
Ennew, C T and Sekhon (2007) The Trust Index, Consumer Policy Review, Mar/Apr, vol 17 (2) pp 62–68
01 October 2012