The psychology of britain’s ‘useless bankers’ syndrome

There is still one remaining puzzle about the Northern Rock affair. People were told as plain as plain as could be that their deposits were safe. Yet they still queued up in their thousands to get their money out. They didn’t believe what they were told. They didn’t trust “the system”.

Why is this? You could say you can’t blame Northern Rock. If people don’t trust the authorities that’s not Northern Rock’s fault. But you could say that the sense of mistrust goes even deeper: that people feel the authorities and the banks are somehow “in this together” because the authorities allow the banks to get away with untrustworthy behaviour.

There is an anomaly here however, because, objectively speaking, Britain’s banks provide their consumers with pretty good value. Free current account banking is a good example. All that astonishingly sophisticated infrastructure, convenience, safety and security, all free – even though it costs a fortune to provide.We also trust banks implicitly in some areas. They know many of the most intimate details of our daily lives, for example – how much we earn, what we spend our money on – but we don’t bat an eyelid about it.

So, on the one hand we trust them with our most intimate secrets and get incredible value from them. Yet, at the same time, we take these benefits for granted, trust them only as far as we can throw them, and constantly badmouth them as rip-off artists.

Why is this? One explanation may lie in the difference between “fair outcomes” and “fair processes”.

Researchers first got wind of this difference 40 years ago when the US government asked social psychologist J Thibaut to investigate why its attempt to introduce mediation into civil legal proceedings was such a failure. The existing adversarial system was expensive and acrimonious and its “win all/lose all” outcomes often seemed unfair. In theory, arbitration and mediation would have been both cheaper and fairer, so everyone should have been happy. But they weren’t.

What Thibaut discovered was that even when the court’s judgment went against them, people felt that the old adversarial system was much “fairer” because at least they’d had a lawyer who had spoken out for them and fought on their behalf. Whereas in mediation they felt powerless.

Tarnished value
Since then, researchers have studied Thibaut’s notions of “procedural justice” (or “fair process”) in scores of different settings: industrial relations, supplier relationships, teams and leaders, relations between subsidiaries and corporate headquarters, political processes and so on. The same basic findings seem to hold true. Generally speaking, human beings are much happier to accept outcomes that disadvantage them if they perceive these outcomes to be the result of a fair process. And no matter how favourable an outcome might be, if it is the result of what is perceived to be an unfair process, its value is tarnished.

Researchers are now pretty much agreed as to the essentials of fair process. First, there must be “consistency of procedure” over time, circumstances and people. So there is no favouritism or arbitrary swings in the ways people are treated. The second is transparency: no hidden secrets, no nasty surprises. The third is engagement: a genuine desire to listen. The fourth is “changeability”: the determination to admit and correct mistakes if and when they are made. And finally, ethicality – keeping in line with generally accepted ethical norms.

Most human beings, it seems, have an instinctive “fairness heuristic” (a decision-making process based on past experiences) where we look out for signs that these principles are or are not being followed, and use this evidence to jump to pretty quick conclusions as to the other party’s motives. If they demonstrate a commitment to fair process, we are happy to cooperate with them. If not, we back off, holding our cards very close to our chest.

Most marketers are already aware of these key ingredients of fair process. Consistent brand experiences, transparency, listening and engagement and service recovery are now all big themes in modern marketing. But in financial services we’ve seen a different evolutionary trajectory.

In financial services, marketers have listened hard to what customers want and tried to give it to them: things like “free banking” or “free financial advice”. But, of course, they’re not really “free” at all, so firms then find they need to claw back some of what they’ve given away: through the odd fee here, penalty charge there, administration levy here, and so on. These don’t sound good in sales pitches, so marketers keep quiet about them. And when customers come across them, they seem to have “unfair process” written all over them.

Take free if-in-credit banking. Leaving aside the little matter of the money banks earn on the money deposited, what infuriates people is the underhand, devious ways that banks find for making a little cash on the side: charges for going overdrawn, for bounced cheques, for using ATMs abroad, and so on. It’s no accident that in the research for its recent changes to banking charges, First Direct found that the one thing customers find “very motivating” is transparent banking. “This does not necessarily mean no fees, but that banking fees and charges should be treated by the bank in a direct and overt manner,” notes First Direct head of brand Matthew Higgins. “Transparency is all about being upfront and clear about the whole proposition, treating customers fairly and keeping them informed.”

Likewise with advice. Because very few consumers are prepared to pay upfront for financial advice, firms offer it “free”. Providers then recoup their costs either by distorting the advice they give, to benefit themselves (e.g. commission incentives) or introduce ludicrous management fees and administration charges – which are then seen as proof of unfairness.

Fairer processes
The net result is that even when the actual outcome is actually quite good, people feel they are being ripped off. In such cases, no matter how “competitive” your product features might be, customers are unlikely to see it as good value. Indeed, the more marketers focus on the value of the outcome (product) – and the more they twist the process to deliver this outcome – the more they actually undermine the perceived value of what they are doing.

If this is correct, what financial services marketers desperately need today is not so much better value products, but demonstrably fairer processes in their dealings with customers. If your brand can distance itself from the common assumption that “they’re all the same” and establish a reputation for fair process, it may be on to a winner. 

Alan Mitchell, www.alanmitchell.biz