Social problems affect consumers’ choice of banks – should the banks take a stand?

OBSERVATIONS FROM THE FINTECH SNARK TANK

Banks’ attempts to avoid taking positions on controversial social issues such as mental health, climate change and ESG could be harming their ability to acquire and retain customers, according to new research.

Banks are given dubious advice on social issues

If the banks are confused by the advice they are getting on social issues, that is understandable.

On the one hand, the Boston Consulting Group argued that banks are “uniquely positioned to have a broad and significant impact on many social challenges” and argued, “there is a clear business case for creating solutions to address social problems, 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, Sen. Pat Toomey, the senior Republican on the Senate Banking Committee, accused the banks of taking “inappropriate” liberal positions on social issues that “hurt America.” Toomey argued that banks are “off limits when they weigh in on non-bank matters like guns and abortion.”

However, BCG’s analysis is suspect because it compared the performance of banks it deemed to be “leaders” based on sustainability scores from MSCI. The “clear business case” is not so 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 results.

Toomey’s accusations are essentially those that are “out of bounds” since many organizations take positions 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 annoy anyone.

For a long time, that approach worked. Back in 2012, I wrote that organizations needed to practice “political tightroping” and explained:

“Like it or not, this is a very polarized time in our history. Marketers cannot afford to be on the wrong side of the fence and must be extremely careful about who their firm supports in political races and what proposed policies and regulations they support or oppose.”

Some high-profile bank chiefs have turned the question of taking a position on social issues back to the government. In his 2022 letter to shareholders, JPMorgan Chase CEO Jamie Dimon wrote, “we demand a 21st century government—we must find a way to more quickly reorganize our government for the new world.”

PNC CEO Bill Demchak believes that the government should be the one making 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 change, is crazy.”

Social issues influence consumers’ brand choice

However, taking a stand on social issues can be the customer-centric thing to do.

A new study from Cornerstone Advisors looked at consumers’ attitudes towards social issues and asked how social issues affected their choice of banks and the relationships they have with financial providers. Key findings include:

• Social issues influence consumers’ brand choice. About three in ten Americans – a consistent percentage across all generations – said they have stopped buying from a brand or switched to another 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.
• The banks’ attitude to social issues affects consumers’ choice of providers. More than four in 10 Gen Zers and three in 10 Millennials have chosen a financial provider because of the bank’s position on social issues.

How banks can take a position on social problems

Taking a stand on social issues does not just mean making public announcements.

More than half of Gen Zers and nearly half of Millennials would like to see messages about the social actions their bank is involved in when they log out of digital banking platforms. Banks can also address social issues through the products and services they offer, including:

• Financial therapy. Although the Americans disagree on what most important social issue is that 70% state mental health as a very important topic. 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 offering financial therapy solutions, offering this service can create a differentiated solution in the market and address the growing trend of mental health.
• Environmentally focused financial products. Banks can offer products tailored to climate-conscious consumers by creating checking accounts that ensure deposits will not fund fossil fuel exploration or production, provide carbon offsets on purchases made on the account’s debit card, and create personalized environmental impact scores to help account holders act to match their values .

Should the banks take a position on social issues?

The changes occurring in the U.S. economy—combined with changing views on social, political, and environmental issues—are creating momentum to create meaningful change regarding how consumers evaluate and use financial services.

This change is most evident among Gen Z and Millennials who are early in their careers looking to build and maintain wealth. With more than 110 million Americans between the ages of 20 and 45, banks cannot ignore their changing perspectives and behaviors.

However, taking a position on social issues does not mean taking a position on all issues. Aligning with one or two issues – such as mental health, income equality or gender equality – can help banks attract and retain young consumers who care about the issues. And the banks can do that without alienating other customers or parts of the population.

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