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Communication between financial institutions and customers has to improve. On average, each UK adult currently holds a staggering £34,000 in debt. As a country, we are entrenched in a culture of debt and default, where planning for the future takes a backseat to the much more urgent task of making it to the next paycheck. The ONS reports that 26% of us are using more credit than usual to cover essentials while we wait the cost of living crisis out. People are struggling, and we’re beginning to see the consequences across the industry.
In April alone, 700,000 people in Britain missed payments on their rent and mortgages, and the FCA estimates that another 750,000 are at risk over the next two years as 1.6 million homeowners reach the end of fixed-rate deals only to find an enormous payment shock waiting for them due to the hike in interest rates.
With 37% of us now suffering from financial stress (second only to the workplace as the primary cause of anxiety in the UK), it’s fair to say that the millions of unread letters and emails across the UK are illustrating the crux of the problem: people are fearful of corresponding with their banks.
To safeguard customers from what we know is coming, we should be finding new, more effective ways to communicate – looking to the past for a steer on what we can change for the future.
A crucial takeaway from the 2008 crisis was the need for better transparency in financial products. The giving out of products without proper explanation or confirmation of understanding from borrowers led to a wave of defaults when customers couldn’t afford the rising payments.
To avoid bad outcomes, institutions must prioritise communicating the benefits and risks of products in a way that optimises comprehension. This entails using plain language that the average person can understand and providing comprehensive documentation regarding terms and conditions. Clear, accurate, and timely disclosure is crucial for building trust between banks and their customers.
We are, thankfully, a long way from where we were. The use of misleading marketing tactics for financial products in the lead-up to the 2008 crisis resulted in harm to both customers and industry.
Moving into a more customer-centric era, all communication must be based on honesty, encouraging people to be curious about their products, ask questions, and interrogate their institutions. Here, we not only undo some of the damage done, we also safeguard customers by arming them with the tools they need to advocate for themselves.
3. Education and Financial Literacy
Institutions should be actively engaging and educating customers about financial products and services. Workshops, seminars, apps, and downloadable resources are all paramount to empowering customers and avoiding financial harm. An informed customer is better equipped to make decisions and contribute to overall financial stability.
Complex financial products and customer confusion were the hallmarks of the 2008 crisis. Firms failed to properly communicate the complexities and risks associated with various products, leaving customers in the dark about potential consequences. By comparison, institutions must become leaders in education. Information should be crystal clear, relevant, and easy to explore. This provides an extra layer of protection for customers and the wider industry.
4. Open Dialogue
Customers often avoid engaging with their financial institutions for fear of the repercussions. Institutions can be completely unaware that the needs and circumstances of a customer have changed, and self-disclosure rates are low. Encouraging dialogue, with reassurances of help as the only result of honesty, is the only way forward. We can do this by changing how we communicate and utilising more modern channels to reach those we don’t hear from.
The 2008 financial crisis severely eroded customer trust. Investing in changing the culture and attitudes towards financial institutions will see far greater success in communication.
Easy access to advice and services is now vital to rebuilding trust with customers. Once a common complaint, burying customer service numbers on vague, rarely maintained web pages is no longer acceptable.
Accessibility is everything. Pathways to assistance must be convenient and user-friendly, considering differing needs and learning styles. These are principles that should be leading a change in company culture, not simply ticking regulatory boxes.
The lessons learned from the 2008 crisis highlight the critical importance of transparent and honest communication between banks and their customers. Open and clear communication is essential for helping customers make informed financial decisions and maintaining trust and confidence in the financial system. The events of 2008 serve as a stark reminder that effective communication is a cornerstone of financial stability and resilience, and it is imperative that banks prioritise it in their interactions with customers. With the FCA’s ominous warning of coming defaults as fixed-rate mortgages come to an end, communication has never been more important for our industry.