Mind the education gap – banks are failing to effectively explain and communicate financial terms
By Andrew Stevens, Principal, Banking and Financial Services, Quadient
Amid the current economic uncertainty, it has never been more important for people to understand their finances and get support from their banks. Especially, as more and more consumers are becoming financially vulnerable as the cost-of-living crisis continues. A series of ONS reports show that the cost of living has increased, 43% of renters report that it is difficult to afford their rent payments, and that Direct Debit failures in the electricity and gas sector remain five times higher than their lowest point in February 2019.
At this time, consumers are looking to financial organisations for advice and support, but there is a huge disconnect between consumers and their banks. While regulations such as the new Consumer Duty aim to bridge this gap, there is still much more work to be done. Banks need to dramatically change the channels and language they use to communicate with and educate customers, otherwise they risk damaging the financial security of their customers and even losing loyalty.
A lack of understanding
The cost-of-living crisis has changed the way customers interact with banks. Consumers now expect and need financial organisations to be offering support at such a challenging time. They want advice on how to deal with rising mortgage rates or rising interest rates but simply aren’t receiving this.
In fact, the FCA’s Financial Lives survey revealed that 7.4 million people unsuccessfully attempted to contact one or more of their financial providers in the 12 months before May 2022. Add to this the 3.6 million who could make contact but couldn’t get the help they wanted, and the 4.3 million that received hard to understand or late information, and the issue is even larger.
Even at the best of times banks should be effectively communicating with customers, but in hard times they can really offer extremely valuable advice that can change the relationship with their clients for the better. Even more worryingly, it appears that consumers do not understand the information and financial terms that banks are providing. Quadient’s research found that 39% of consumers claim a high level of knowledge on financial matters, and 53% say they have a high understanding of communications from banks. But when tested, only 8% of consumers could fully understand updated overdraft charges.
This lack of financial education is particularly concerning given that the Consumer Duty has now come into effect. The Duty demands that banks ensure customers truly understand the products and services that they are being offered. But our research shows this is currently not the case. To comply with the Duty, but more importantly help customers, financial organisations need to share relevant and timely information, and also make sure that it is being read and understood.
Communication is king
Clear communication is a critical component of modern banking. Financial organisations need to not only share relevant, timely and understandable information, but make sure that it is being read. This means choosing a channel that presents information clearly, and that banks can be confident customers will read and understand, as well as sending the right message at the right time to ensure engagement. For example, if a customer has asked to only receive communications via post, then they are very unlikely to read an email from their bank, no matter how useful it might be.
Consumers are clear about what communications are most useful for them. Asked how they prefer to receive communications from their bank, 36% said emails to their personal email address, and 34% opted for letters in the post. Knowing these preferences should make it easier for financial organisations to ensure they are using the right communication channels, but that isn’t necessarily the case. 43% of respondents said their bank “never” or only “sometimes” communicated with them over their preferred channel, suggesting banks are ignoring or ignorant of customers’ preferences.
But even if the bank is using the right channel, if the message isn’t right or clear then the communication becomes redundant. Financial organisations need to ensure news is personalised by segmenting their customer base. By dividing customers into groups based on internal data, banks can identify the different levels of advice and products that individuals need. For example, a customer who has a mortgage renewal approaching might be worried about rising mortgage rates. The bank can offer proactive and personalised support and products to meet the customer’s needs while reducing stress.
When was the last time anyone said, “wow I just received a really great piece of advice and support out of the blue from my bank”? The chances are never. But this is what banks should be aspiring to.
A necessary shift
Banks need to help every single customer make informed financial decisions. They need to re-examine what is “reasonable” when contacting customers, and ensure they are asking the right questions – are their communications clear? Are they personalised? Are they using the best channel for the customer to read and understand messages? And is that message being delivered in a timely manner? This is a stressful time for banks and their customers, but by communicating effectively on the right channel, at the right time and with the right information, financial organisations can become truly customer-centric and build long lasting and value-based relationships.
