Study: Consumer trust affects credit card use

Media coverage and lack of transparency hurting financial institutions.

Trust affects credit card use

The more consumers trust their financial institutions, the more they use their credit card, according to a Javelin Strategy & Research study. The graph below shows the change in credit card use over 90 days grouped by consumer trust in financial services companies. Worse or much worse means the respondant said his trust level decreased.

More students are carrying balances, and their averages continue to increase.

Similar to a couple having trust issues, consumers who don't trust their banks are less likely to go out with their credit card, a recent study has found.

The report, titled "The Importance of Consumer Trust on FI Profitability," released this month by Javelin Strategy & Research, found that 19 percent of consumers who showed more trust in financial services companies indicated increased credit card spending over a 90-day period.

In contrast, among those who show decreased trust in financial services companies, 50 percent decreased credit card usage, while just 9 percent increased usage.

"It was very surprising to me that trust became such an important issue," said Bruce Cundiff, the author of the study and director of payments research and consulting for Javelin Strategy & Research. "The financial institutions that will make it are the ones that generate trust by proving they are out to help people manage their finances and navigate these hard times."

However, a decrease in credit card usage can't entirely be tied to a decrease in trust. The ability to support a life on credit is being harder as the economy descends, which translates into less people charging. According to a G.19 report released in April, revolving credit dropped by 9.7 percent in February, the largest decline since January 1978.

Overall, only 11 percent of consumers experienced an increase in trust for their financial institution over a one-year period, while 43 percent said they trust their institution less.

Many people lost trust due to negative media coverage, Cundiff said. The study, based on data taken from a random sample of 2,339 respondents, was taken during September 2008 -- a turbulent time for banks and other financial organizations. Daily coverage focused on institutions taking TARP funds and using taxpayer's money to fund executive bonuses.

"To engender trust, you have to control what you can, which means not investing in private jets," Cundiff said."Perception created by the media affects the level of trust consumers have in financial services companies."

Another reason for shrinking trust: A lack of transparency. Banks and other institutions have to be open about their practices and the fine print behind them if they want to keep customers happy, Cundiff said. If they start off on a good foot, customers will stay with them and build a lifetime relationship.

Wells Fargo showed the highest level of increase in trusting customers, as 17 percent of account holders indicated increased their trust.

Cundiff attributes this partly to the bank's availability of financial education tools, such as My Spending Report, which allows users to plan and track a budget. Wells Fargo also has multiple ways it reaches its customers -- through its own blog, YouTube and even Twitter -- that engages customers and lets them be heard and informed, according to the report.

"Survey after survey we've seen this," Cundiff said. "[Consumers] are saying 'Help me.Help me beyond tomorrow.' The kinds of institutions offering that type of help will be able to build lifelong relationships, and might be the ones that succeed."

See related: G.19 report: Consumer credit card use suffers biggest drop in 31 years, News websites promote financial literacy

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Updated: 03-22-2019