Financial Crisis Creates Faith Crisis

"Can I interest you in a faith-based account?" the teller asks in one of the many cartoons lampooning banks in the Oct. 6 issue of The New Yorker. If banks don't trust each other enough to lend to one another, why should consumers trust their money to them? That seems to be the logic underpinning recent media commentary, consumer confidence surveys, the stock market's plummet and even bank withdrawals, all of which indicate a fall in consumers' trust in the economy and in banks in particular.

"Trust between consumers and financial institutions -- it's not there anymore," former BITS CEO Cathy Allen told BS&T in mid-August. The founder and CEO of The Santa Fe Group, a New Mexico-based consultancy, was already doing some major work on the topic of consumer trust in banks, which she says has been eroded over the past decade.

That was before many huge names in banking failed and others went on fire sale or were propped up in the form of part ownership by their governments. It was also before global governments began raising in September guarantees on consumers' bank deposits, in the form of higher F.D.I.C. insurance limits, for example.

European industry sources tell BS&T of a massive movement of money out of U.K. banks in October and into the perceived safe haven of Ireland. This began once the Irish government declared on Sept. 29 that it would guarantee bank deposits 100 percent -- a surety not generally available elsewhere.

Earlier that week, two consumer surveys, which presented contradictory findings (see related sidebar), were released in the U.S. While both indicated that consumers have a lot of trust in doing business online, one questions whether consumers prefer to do it with banks.

Competitive Advantage Slipping Away?

A survey by Cisco Systems reported that consumers do not automatically trust a bank more than a nonbank to handle their money -- evidence, perhaps, that the unassailable advantage banks usually claim over their competitors (a bank's "trusted position") may be slipping away. Commenting on the Cisco survey, Jim Greene, VP of the San Jose, Calif.-based firm's global financial services practice, says, "More than 70 percent of respondents had as much trust for a nontraditional as a traditional payment provider."

Moreover, Cisco found that 57 percent of survey respondents neither "trust" nor "trust very much" banks for mobile payments, while 33 percent have the same lack of trust in bank-sponsored online payments -- hardly a vote of confidence. Meanwhile, among baby boomers (those aged 45 to 64), 24 percent said they actively distrust banks for mobile payments.

According to Greene, the industry consensus is that banks' share of the payments business is declining by 3 percent to 5 percent a year. "When payments are 40 percent to 60 percent of your revenue," it causes concern, he understates.

However, a coinciding survey by CashEdge, a New York-based vendor of funds transfer software, concluded that consumers "trust" banks, adding that "the results show a strong consumer preference [over PayPal] for bank-sponsored person-to-person payments."

More Questions Than Answers

When Brent Rickels, SVP of Valley Mills, Texas-based First National Bank of Bosque County ($97 million in assets), read BS&T's online reports of these surveys, posted within a few days of each other on Banktech.com, he was, understandably, confused. "These surveys raise as many questions as answers," Rickels says.

Consumer trust has become a huge concern in the banking industry, Rickels agrees. But recalling a recent incident, he notes a quirk in consumer attitudes. According to Rickels, an elderly First National Bank of Bosque County customer who uses PayPal was the victim of a phishing attack. "When he had problems, he ran to the bank -- not PayPal -- to help him," he says.

Nicole Sturgill, a research director with Needham, Mass.-based TowerGroup, questions whether it is possible to quantify overall trust across all social groups. Still, she acknowledges that it is plausible that there has been a general decline in consumer trust in financial organizations lately. "Beginning with the bankruptcy of Lehman Brothers on Sept. 15, the general state of banking has become much more critical to consumers, so it wouldn't be surprising to see major shifts [in trust] in a short time frame," she says.