Financial services are effectively essential in modern life, regardless of where in the world you live. Wherever money is used for exchange in place of barter, there you will find a need for financial services. However, as with almost any broad-reaching system, there are problems inherent in it that are a product of a long and complex past and an ongoing struggle to be all things for all people.
We are going to take a look at some of those problems, their causes and perhaps even some potential solutions (bearing in mind that “put up with it” counts as a valid solution, because some problems cannot be overcome so easily). However, before we do so, we need to be clear on exactly what we are talking about.
What are financial services?
For such a complex part of the economic system, financial services are actually relatively simple to explain. It is, effectively, any service that involves money management, from banks and accountancy companies to credit-card companies and insurance firms to stock brokerages and investment funds and so on.
Surprisingly, while some of these services have existed for centuries, the term “financial services” has only really been prevalent since the introduction of the Financial Services Modernization Act of 1999 (better known as the Gramm-Leach-Bliley Act or GLBA) in the United States. This act allowed individual companies that previously provided only one or two of these services to merge into far larger entities. Since these entities now required a name to accurately but simply describe them and their activities, they became known as “financial services providers”. Of course, there was significantly more to the GLBA, including provisions for customer data security, but the fact remains that it birthed the term as we know it today.
So, this being the case, financial services can be said to include at least those companies that do the following:
- Stores and protects your money
- Issues chequebooks and processes cheques
- Provides personal and business loans, including mortgages and overdrafts
- Issues credit and/or debit cards and processes their transactions
- Provides transfers between banks, either locally or internationally
- Provides internet banking facilities
- Facilitates automatic payments like standing orders and direct debits
- Sells investment products
There are plenty more, and we could do an entire article on just the investment banking services, but you hopefully get the point by now. So, let’s look at some of the problems with this industry.
Financial services are far too confusing!
Remembering what we said in the very first paragraph - that financial services are basically essential for a modern life - it may shock you to learn that as many as two thirds of Britons find finance impossibly confusing. A poll of 3,000 people by learndirect further found that 10 per cent of those asked had signed up for products or services that didn’t even meet their needs.
Admittedly, this is a two-way street - it’s as much a fault in the British education system for not teaching people to manage their money properly as it is a fault of the financial services sector for being impenetrably complex. However, this is not a problem unique to the UK. Indeed, the Center for Financial Inclusion at Accion found that a surprising number of people around the world do not understand even relatively ordinary banking terms while Fundación Capital found that poor women in Latin America even struggled with operating ATMs and preferred having the opportunity to practise on a simulator in private.
While finance is inherently a little complex, it should be obvious to financial services providers that customers are far more likely to buy products and services that they can actually understand. As the Harvard Business Review puts it: “to keep your customers, keep it simple”. Very simple measures like making it easy for customers to compare the benefits of one product over another help you to build trust and brand loyalty.
Financial services are inaccessible!
The logic behind bank opening hours is mystifying. Most people work Monday to Friday from 9 to 5. And so do the banks. So, if you ever need to sort out something financial without losing work time, you have to go in your lunch break from 12 to 1. However, a huge number of people are going to be doing the same thing, making for enormous queues. To add insult to injury, you often find that most of the bank’s counters are unstaffed at lunch time because...well, it’s lunchtime for the bank staff, too!
Perhaps the above scenario is a little bit of a cliché, but it became one simply because it has historically been accurate to real life so frequently. For those living in Thailand, you can add an extra element to this scenario, whereby the staff in one branch of any given bank will give you one answer to your questions while those in a different branch may give you a completely different answer.
Of course, internet and mobile banking have largely solved this issue. It’s now possible to access an impressive suite of financial services outside of working hours and without visiting a bricks-and-mortar branch. Of course, there are still some banks that merely use their websites to advertise services that you must still come into the branch to actually get, but it is unlikely they will be able to sustain that approach for much longer.
Fintech has been the first part of the financial services sector to put a real emphasis on the user experience, creating simple-to-use tools to enable customers to manage their finances with effortless ease. Platforms are now providing a vast range of services to supplement and sometimes even replace traditional options. The fact that even big-name banks are consistently losing customers to fintech-based firms proves just how important ease-of-use is to most people and how unwise it would be for the financial services industry as a whole to ignore this fact.
Financial services providers are untrustworthy!
Did you know that bankers are considered less trustworthy than local politicians? In fact, the 2017 Ipsos MORI Veracity Index found them to be the seventh least-trusted profession in the UK. A TrustPilot report in 2018 found that half of the 15,000 people they surveyed don’t trust finance companies, with 31 per cent ranking them as “untrustworthy/not trustworthy at all”. That’s a problem.
This lack of trust in financial services providers is a multifaceted issue, though. For example, there’s the fact that salespeople tend to be paid on commission, making them more likely to sell the product that’s most profitable for them than the one that is the best fit for the customer’s needs, but that, like our scenario in the previous point, is arguably more a Hollywood cliché than a common reality. There’s also the fact that the smallprint in agreements often conceal unexpected fees and restrictions - an issue that relates back to our first point about excessive complexity.
There are other facets to this distrust that we have not already covered, though, like questions over security. Financial cybercrime has been rapidly rising in recent years, with a Financial Conduct Authority (FCA) report noting that there was an 80 per cent increase in attacks from previous years in 2017. Banks, in particular, have always traded on them being the safest place to store your money, but is that still true?
Then there was the financial crisis of 2007-08, largely caused by dodgy practises and extreme risk-taking among banks. The repercussions were enormous, with huge numbers of people right around the world losing massive amounts of money that they previously thought was perfectly safe.
The list goes on and, once again, it’s fintech that seems to be providing a solution. Neobanks and other financial institutions that are not directly linked to banks are able to start from a clean slate, without generations of bad experiences colouring their customers’ opinions of them. Through being open and honest, having no salespeople on commission and providing a simple and understandable user experience, they seem to providing solutions to the problems that plague the financial services sector.