Retail Finance Consumer Confidence Survey 2008

Financial Service providers need to re-build trust as consumer confidence falls in the economy and financial institutions

The latest consumer confidence survey from financial research experts, Illuminas confirms that falling consumer confidence has dented trust in financial service providers compared to 12 months ago. Illuminas conducted the research among 600 adult consumers in the UK in January 2008.

Consumer confidence

Over three quarters of consumers predicted that the UK economy would slow down in2008 and are cautious, sometimes worried, about the effects of this slow down on their financial situation. Whose responsibility is it? Many accept that their financial situation is their own responsibility; however, they also feel that financial providers should take some of the blame for the current financial situation. The main reasons given for the economic slowdown over the next 12 months were consumer indebtedness, irresponsible lending (both 43%) and US economic conditions (37%). Over the next year most consumers expect the cost of living to increase (89%) and inflation to rise (72%).

Trust and Financial Service providers

In the current financial climate trust emerges as a key issue. One third of respondents claim they trust financial service providers less than 12 months ago. From a list of 12 sources for advice and information on personal finance issues; High Street Banks were ranked 8th in terms of trustworthiness behind IFA’s, Accountants, Building societies and even financial comparison websites! but above solicitors, government bodies, insurance companies and newspapers!

Three quarters of consumers interviewed believe financial services providers are too eager to lend money to customers who might not be capable of paying it back; nearly two thirds think providers should be more heavily regulated; and 1 in 2 believe financial service providers are partially responsible for the current downturn in the economy. On the positive side 1 in 4 consumers would value a closer relationship with a provider; 37% are more likely to use well known providers and 71% believe the cheapest provider is not always the best. These positive associations combined with earlier views suggest ‘schizophrenic consumer behaviour’

Around 4 in 10 felt that the economic slow down would impact ‘a little or a lot’ upon their spending and financial behaviours. On the whole, UK consumers have relatively cautious, sensible attitudes towards their finances – saving more, reducing borrowing and using credit cards less were typical stated intentions. In addition, 44% indicated that they were more likely to switch for a better deal in 2008. 86% felt that it was their responsibility to ensure they don’t borrow beyond their means… but 76% also felt that financial providers are too eager to lend money to customers who may not be able to pay it back

How will consumers change their behaviour?

On the one hand consumers say they need to balance their finances over the next year; with 4 out of 5 agreeing it is important to have savings to protect themselves from unexpected expenses and currently three quarters agreeing they try and live within their means. In reality however, behaviour is unlikely to change significantly over the next 12 months; only a third claim they will use their credit card less and only 2 out of 5 intend to save more.

At the overall level, 2008 will represent a cautious year for consumers and financial service providers will face a challenge in building trust and confidence. Supermarket brands doing well in terms of gaining consumer confidence. More established high street banks and insurance providers will face a greater challenge against pre-conceived perceptions.

Looking for better value will be a key theme for 2008; with 55% claiming they are more likely to use a price comparison website this year. Furthermore, competition for consumers’ attention is likely to be strong between providers – a notable proportion of consumers regularly look for better deals and the current climate heightens switching considerations.
Thus, those providers who are able to build trust and confidence whilst remaining visible (i.e. top of mind and ‘best value’) are more likely to benefit. The research suggests, however, consumers are unlikely to change their credit based spending habits significantly in 2008 which is good news for the sector.

Four distinct segments characterised by their attitudes and the impact of these attitudes upon their behaviours towards financial management were discernable in the research and suggest that a variety of messages will be required to address issues and concerns at hand.

Furthermore, a perceptual brand positioning map suggests that some providers have a distinct advantage in terms of perceptions of trust

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