Consumer Trust and Financial Services

In a February 2019 article in The Review of Financial Studies a research report by professors at the Columbia Business School was published.

The professors’ objective was to ask why US homeowners were slow to consider refinancing options even when it could provide significant savings.

The study was based on one financial institution’s offer to 550,000 eligible borrowers under the Home Affordable Refinance Program (HARP).

What were the behavioral factors that caused the homeowners not to take the refinancing offers? All current borrowers were sent pre-approved applications; there were no fees. Yet 51% passed on the opportunity which would provide an average savings of $9,000.

The Primary Reason for Not Acting

“Survey data indicate that among all the behavioral factors examined, only suspicion of banks’ motives is consistently related to the probability of accepting a refinancing offer,” concluded the authors.

The study also looked at the impact of incentives including use of Fannie Mae and Freddie Mac to increase credibility, a $500 cashback if the process took more than 30 days, and a gift card for an immediate acceptance.

The result: “We report the results of three field experiments showing that enticing offers made by banks fail to increase participation and may even deepen suspicion.”

The paper’s bottom line: “Our findings highlight the important role of trust in financial decisions.”

Can Trust be Marketed?

Most credit union teams know trust matters. It is common sense. The challenge is how to communicate this fundamental characteristic of cooperative design. Is it by emulating the marketing strategies of the banking industry? Or honoring the loyalty and relationships that build a cooperative?

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