OBSERVATIONS FROM THE FINTECH SNARK TANK
Banks’ attempts to steer clear of taking positions on controversial social issues like mental health, climate change, and ESG may be hurting their ability to acquire and retain customers according to new research.
Banks Get Questionable Advice on Social Issues
If banks are confused by the advice they get on social issues, it’s understandable.
On one hand, Boston Consulting Group claimed banks are “uniquely positioned to have a broad and sizable impact on many social challenges” and asserted, “there is a clear business case for creating solutions to address social issues, including access to new markets, improved financial performance and cost of capital, ability to attract talent, and reduced reputational and regulatory risk.”
On the other hand, Senator Pat Toomey, the senior Republican on the Senate Banking Committee, accused banks of taking “inappropriately” liberal positions on social issues that “harm America.” Toomey argued banks are “out of bounds when they weigh in on non-banking issues like guns and abortion.”
BCG’s analysis is suspect, however, because it compared the performance of banks it considered to be “leaders” based on sustainability scores rom MSCI. The “clear business case” isn’t that clear because: 1) there are more social issues than just environmental sustainability, and 2) BCG’s data shows correlation—not causation—between sustainability scores and business performance.
Toomey’s accusations are really the ones that are “out of bounds” since many organizations take stances on social issues that have nothing to do with the industries they operate in (it’s called “free speech”).
Why Banks Stay Out of the Social Fray
The vast majority of financial institutions shy away from taking a stand on social issues for a good reason: They don’t want to piss anyone off.
For a long time, that approach worked. Back in 2012, I wrote that organizations had to practice “political tightroping” and explained:
“Like it or not, this is a very polarized time in our history. Marketers can’t afford to be on the wrong side of the fence and have to be extremely careful who their firm supports in political races and which proposed policies and regulations they support or oppose.”
Some high-profile bank CEOs have deflected the question of taking a stand on social issues back to the government. In his 2022 letter to shareholders, JPMorgan Chase CEO Jamie Dimon wrote, “we require a 21st century government—we need to find a way to more rapidly reorganize our government for the new world.”
PNC CEO Bill Demchak believes the government should be the one to make policy choices on social and environmental issues, not banks. According to Demchak, “trying to shame people out of certain exposures for social reasons without a plan, without a formidable plan on the other side to actually cause changes, is nuts.”
Social Issues Influence Consumers’ Brand Choices
Taking a stand on social issues may be the customer-centric thing to do, however.
A new study from Cornerstone Advisors looked at consumers’ attitudes towards social issues and asked how social issues influenced their choice of banks and the relationships they have with financial providers. Key findings include:
- Social issues influence consumers’ brand choices. Roughly three in 10 Americans—a consistent percentage across all generations—said they’ve stopped buying from a brand or switched to a different brand based on a brand’s position on social issues.
- Young consumers want to know where their banks stand. Nearly six in 10 Gen Zers and half of Millennials want their financial providers to make public statements on key social and political issues.
- Banks’ stances on social issues impact consumers’ choice of providers. More than four in 10 Gen Zers and three in 10 Millennials have selected a financial provider because of the bank’s position on social issues.
How Banks Can Take a Stand on Social Issues
Taking a stand on social issues doesn’t just mean making public proclamations.
More than half of Gen Zers and nearly half of Millennials would like to see messages about the social actions their bank are involved with when they log out of digital banking platforms. Banks can also address social issues via the products and services they offer, including:
- Financial therapy. Although Americans disagree what the most important social issue is, 70% list mental health as a very important issue. Financial therapy sits at the intersection of financial and mental health and helps people think, feel, and behave differently about money to improve overall well-being. With few banks providing financial therapy solutions, offering this service can create a differentiated solution in the market and address the growing mental health trend.
- Environmentally-focused financial products. Banks can offer products tailored to consumers with climate concerns by creating checking accounts that ensure that deposits won’t fund fossil fuel exploration or production, provide carbon offsets on purchases made on the account’s debit card, and creating personal environmental impact score to help account holders shop to match their values.
Should Banks Take A Stand On Social Issues?
The changes occurring in the American economy—combined with shifting views on social, political, and environmental issues—are generating the momentum to create meaningful change regarding how consumers consider and use financial services.
This change is most evident among Gen Z and Millennials who are early in their careers and looking to build and maintain wealth. With more than 110 million Americans between 20 and 45 years old, banks can’t ignore their changing perspectives and behaviors.
Taking a stand on social issues doesn’t mean taking a stand on every issue, however. Aligning with one or two issues—like mental health, income equity, or gender equality—can help banks attract and retain young consumers who care deeply about the issues. And the banks can do so without alienating other customers or segments of the population.
Read the full article here