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Reputation is everything - especially for financial firms
WHILE Asian financial services companies are viewed extremely positively by their customers, the emergence of digital providers and their disruptive technologies may threaten the dominance of traditional firms if trends in China and India are any guide.
The global financial crisis (GFC) of 2008 ushered in sweeping reforms of the financial sector globally. Regulators moved to strengthen compliance to better protect customers against a range of problems, including product mis-selling that was pervasive in some markets including the United States and United Kingdom.
Asia's financial markets bounced back relatively quickly due in part to swift action by regulators, strong macroeconomic fundamentals and favourable demographic drivers. Firms in the region were also arguably better prepared for the crisis than the rest of the world due to changes made in the wake of their own economic crisis a decade earlier.
With less post-GFC fallout to deal with, financial services companies in Asia focused on forging strong pan-regional networks and investing in innovation. What they shared with global peers was a pressing need to reassess their purpose, relationship with customers, and role in the community.
In the years following the financial crisis, structural and cultural changes were enacted, and - crucially - reputation was catapulted to the top of the CEO agenda alongside a focus on environmental, social and governance (ESG) principles.
A decade on from the GFC, technology is transforming the lives of people in Asia at an unparalleled pace. Financial services businesses across the region are grappling with how to contend with disruptive technologies, which slashed margins in core lending and transactional markets, and how best to embrace digital solutions to provide better experiences for customers.
Overall, the findings in an inaugural Financial Services Reputation Index (FSRI) report for Singapore and Asia by MHP Communications paints an overwhelmingly positive picture. In Singapore and India, more than 90 per cent of consumers have a positive perception of the industry. In China and Hong Kong, the figures were 83 per cent and 81 per cent respectively. In Singapore, banks and payment systems providers lead the way in the positivity stakes. The report also shows that customers and investors alike are more likely to gravitate towards companies that are good corporate citizens, adopting ESG policies that reflect community values and industry best practice.
By comparison, the same study in the UK in February found that only half of consumers perceive the industry positively. Given the recent challenges with Brexit and the more severe impact of the global financial crisis on the UK, this seems unsurprising. Elsewhere, banks and insurance providers in Australia are struggling with terrible public perceptions as an ongoing government inquiry highlighted unethical practices across the sector, including charging deceased customers fees for financial advice, and institutionalised processes of refusing to pay out on insurance policies. Not surprisingly, none of Australia's four largest banks were in the top 10 most trusted domestic brands in a recent survey by Australian market research company Roy Morgan.
What will be the cause of the next financial crisis? Our research with CEOs in the region brought many responses but all centred on one premise: institutional memories are short, and it will happen again. Lessons can be learnt from past mistakes, and it is important that the sector in Asia does not become complacent in its approach to reputation.
Geographically, there are significant differences in perceptions of digital and traditional financial services providers. Consumers in China and India see digital financial services companies as more trustworthy than traditional peers while in Singapore and Hong Kong, the view is the complete opposite.
To be sure, this difference is likely due to the inclusive nature of digital providers, often bringing customers into the financial system in those economies for the first time, but the disruptive nature of their lower cost offerings could threaten the dominance of traditional banks in other more developed markets if there is a similar shift in public perceptions.
Not unexpectedly in light of high-profile data breaches in the region and globally, data security is a top concern for clients and corporate leaders alike, and is a major source of reputation risk for financial services firms. Similarly, insurers and financial advisors need to focus on building trust with clients - something that was damaged in many cases irreparably during the GFC.
Somewhat encouraging for the industry, however, is that the youngest in society had the most positive view of the financial services industry. This suggests that as intergenerational wealth transfer continues from the Baby Boomers to generations X, Y and millennials, traditional firms with a significant digital offering would be likely to retain customers' wealth.
Although financial services in Asia enjoy a solid reputation, its collective challenge will be to successfully navigate the regulatory and competitive challenges while striking a balance between profitability and community engagement. In doing so, they would avoid the missteps of many of their counterparts in other parts of the world.
- The writer is CEO Asia-Pacific, MHP Communications