Last week, my organization, the Center for Financial Services Innovation, released a set of principles and best practices for delivering the kinds of everyday products and services consumers need to manage their financial lives. We call them the "Compass Principles," and we believe they have the potential to create a more enabling environment for financial services innovation that is positive for consumers and promotes competition and profits.
Despite a raft of new regulations and capital requirements designed to protect consumers and strengthen banks, consumer confidence in financial institutions continues to plummet. Eighty-seven percent of consumers have little or no confidence in financial providers across all dimensions critical to trust, according to the Corporate Executive Board's latest quarterly Consumer Financial Monitor survey.
Some 55 percent say institutions don't offer clear and simple policies, while 53 percent don't feel financial institutions share customer values. Nearly half lack confidence that banks live up to their promises and commitments. This lack of confidence reduces product sales and exposes banks to greater competitive threats from the growing number of nonbank innovators.
To stop the slide, the banking industry needs to remind people what it stands for. It needs to demonstrate that it can provide real value that benefits consumers and the bottom line in equal measure.
No one company can solve this crisis of confidence, no matter how clever its marketing messages. It doesn’t matter whether or not your bank engaged in subprime mortgage lending, credit-default swaps or any of the other practices that contributed to the financial meltdown. The financial services industry got itself into this mess through a decade of excesses, and it is going to take a coordinated industry-wide approach to restore consumer trust.
We think the Compass Principles offer a path to reconnecting with the historic values that have made the financial services industry such a critical part of the economy and of the health of communities and consumers.
Our vision is simple, yet bold: Financial services can actively contribute to making people’s lives better and deliver profits for providers. The Compass Principles provide a roadmap for answering the question, "How?"
The four principles are:
- Embrace inclusion: Responsibly expand access.
- Build trust: Deliver clear and consistent value.
- Promote success: Link smart design with actionable guidance.
- Create opportunity: Provide options for upward mobility.
For each principle, CFSI provides a definition, success indicators, and examples of how to apply the principles to transaction, saving and credit products.
The Compass Principles are built on a firm belief that financial services offerings must be profitable in order to offer lasting solutions for consumers. The principles are not about charity, or about corporate social responsibility, or about Community Reinvestment Act requirements. Rather, they chart a course for how providers can responsibly innovate and make money as a result of their customers’ success.
The execution of the principles must be grounded in deep knowledge of consumer needs, along with the desire to meet those needs safely and responsibly over the long-term. They also acknowledge that no single provider can meet the totality of needs in the marketplace. There is value to variation and choice in the marketplace, and no one approach is right for all consumers.
Finally, the principles recognize that a high-functioning financial marketplace requires mutual responsibility. Providers and consumers must both act responsibly for healthy financial relationships to flourish.
There is much work to be done to transform the Compass Principles from words on a page to an industry manifesto. They need to be discussed and debated throughout the marketplace, by financial services providers, consumer advocates and policymakers. Robust cross-sector dialogue is critical to generating shared understanding and giving the Principles credibility.
Once there is broad agreement on the principles, then we must engage in the hard work of applying them at a more granular level to specific products and practices. We have already begun this exercise with prepaid debit cards, bringing together key stakeholders across the prepaid value chain and the consumer advocacy community to help us create a guide to prepaid quality. Our goal is to learn from the process and replicate it for other financial products.
I invite you to join us on this important journey. Read more about the principles at
The financial services companies that will emerge from this challenging era as winners are those that reconnect with their values and communicate them to customers, not just with words but with deeds. Become a Compass Principles champion and be part of the solution.
Jennifer Tescher is the president and chief executive of the Center for Financial Services Innovation.
