Consumer Reaction to the Banking Crisis

Last week I had a meeting with MidSouth Bank and was impressed with how they are responding to consumer concerns about the stability of financial institutions and the availability of credit.

It got me thinking about the issue and I re-read a recent Nielsen surveythat assessed consumer attitudes in the the wake of the failures of IndyMac and Lehman, and the acquisition of WaMu, Wachovia and Merrill Lynch. Some results are to be expected, but there are a number of surprising conclusions.

Here are some key findings:

• 70% of consumers are very concerned about the economy – no surprise! “Bad”, “greed” and “scary” were the most frequent adjectives.
• There is a high sense of personal impact. 31% were directly affected by the failure or acquisition of a financial institution in the current crisis — that’s a bigger number than I expected.
• Interestingly, most believe the crisis will have limited effect on them personally. As a general rule, consumers are more confident about their personal finances than about the overall economy. But it has caused them to become cautious and “hunker down”.
• The same things that were important in selecting a financial institution before are important now: safety, trustworthy and customer service are the top 3 attributes. It is always interesting to note that consumers rarely list price as the most important factor.
• Consumers are looking for help. More than 60% believe selecting appropriate financial products is complicated and they want to be conservative in today’s economy (80%).
• Good news for banks – almost 90% indicate they will maintain the financial relationships they have. There is no strong indication consumers will change banking relationships or withdraw their funds as a result of the crisis. Perhaps this is because they are not sure where else they might go. But once burned, twice shy. Of those directly affected by one of the banking failures (had funds in a bank that was acquired or failed), 40%indicated they are likely to change relationships again in the next 6 months due to safety and soundness concerns.
• Consumers are concerned about the growing size of banks – 60% believe there is too much reliance on a few large banks. Is this an opportunity for community banks to make inroads?
• Surprisingly, Credit Unions were seen as the most secure financial institutions. Over 30% said Credit Unions are more secure than other types of financial institutions – banks were rated as the most financially secure by slightly over 20%. Perhaps that’s because bank failures have been in the news and it is rare to hear about a credit union failure. But I suspect it also has a lot to do with the high level of personal service combined with the very focused credit union business strategy.

What strategies should banks employ? Unfortunately the economic turmoil and the resulting loss of confidence will hurt many organizations, but smart financial institutions will adopt strategies to maintain trust, reinforce stablility and position themselves as thought leaders. We had some recent recommendations for ways to make your brand stronger during the current crisis.

What impressed me about MidSouth? They are takingthe lead in addressing the concerns of businesses and consumers – and using this as an opportunity to acquire healthy new relationships – by holding town hall style meetings to let businesses know they are strong, secure and actively lending.

A shorter version of this post was originally published on the Retail Banking Strategies blog at the BAI Community.