By James Eyers: Low levels of public trust in major banks is being used as ammunition by fintech competitors to lure away their Millennial customers, says Afterpay's executive director Anthony Eisen, in an indication the Hayne royal commission could embolden the fintech sector to further improve services and reduce fees.
After the Deloitte Trust Index for banking, published in The Australian Financial Review on Monday, found only one in five Australians believe banks act ethically, and only one in four say banks keep their promises, Mr Eisen said the "major banks themselves have acknowledged their strong level of trust and positioning has been eroded over time".
The co-founder of the fast-growing credit card competitor, which has more than 2.3 million customers, said an "explosion of new digital payment options has occurred while faith in the banks has dropped" and "as the banks have fallen hard off their pedestal, a new generation of customers is trusting a new generation of financial services".
With the Deloitte survey revealing 59 per cent of customers believe banks have shareholders' interests at heart, but only one in five say the same for customer interests, Australian Banking Association chief Anna Bligh said in response to the survey that it "once again illustrates the hard road ahead for the banking industry to earn back the trust of the Australian public".
"The past few months of hearings at the royal commission have been sobering for the entire industry and have hammered home to all involved in banking the need for change," she told The Australian Financial Review.
But changes needed to earn back trust have begun across the industry, she said, including a new banking code of practice introducing new rights for customers, the removal of sales targets in staff remuneration, improvements to complaint resolution, and simplification of products and services.
In addition, she said banks had recently committed to ending the "fees for no service" practice across the industry, overhauling the way they manage deceased estates and supporting legislation to end grandfathered payments for financial advisers.
Mr Eisen said Afterpay, which has a net promoter score of 62, established trust as a new player by not making money from consumers. Rather, retailers pay most of the costs of the service. "This, above everything else, is how we avoid the mistrust built into the traditional finance sector and build the levels of trust we need to operate effectively," he told the Intersekt fintech festival in Melbourne.
Banks have already realised reducing fees and interest charges could be part of the response to the royal commission, which is set to keep pressure on non-fee income and net interest margins. For example, National Australia Bank recently refused to pass through higher funding costs to customers to build trust with loyal customers.
The Deloitte index showed that the majority of bank customers would be willing to switch to a bank that offered better prices and services.
EY Australia fintech advisor, Meredith Angwin, said that "fintechs generally expect the royal commission to be a net positive for their sector in the medium term, seeing it as an opportunity to grab consumer mindshare and differentiate their offerings in the market". Yet fintechs also "believe it will slow the innovation focus for the next 12-18 months", she added.
Cris Parker, executive of the Banking & Finance Oath, said the restoration of trust would require a "complimentary, principle-based approach to provide ethical underpinnings to reassert the ethical foundations of the sector. We can't underestimate the impact individuals can have."
Australian Prudential Regulation Authority chairman Wayne Byres said earlier this month the Banking & Finance Oath was "powerful because it is very much a personal commitment by individuals".
"While regulation and corporate systems work top down, these are individuals seeking to drive change bottom up," he said. Signatories "have chosen to make a public commitment to acting with integrity. The example they are setting is an important one."
ASIC declined to comment on the Deloitte survey results but chairman James Shipton has previously described "a trust deficit facing the financial services sector and, more broadly, corporate Australia".
EY said on Monday that trust hadn't been identified as a significant driver or barrier to winning new customers in its Fintech Australia Census 2018, but "it will be interesting to see if trust becomes a factor in a post-royal commission world".
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