While banks thankfully were not involved in GameStop's stock saga that rocked investors, it has underscored the value (and volatility) of a cornerstone to the financial industry’s success: customer trust in an institution.
A financial firm can build success using cutting-edge technology, effective marketing and even convenient physical locations. But the value of these things is instantly diminished if customers’ trust in the conduct of a company is lost.
Like many of my generation, I had no inkling of the backstory that preceded the sudden thrusting of
On the surface, hedge fund investors shorting GameStop's stock while Reddit users bought the stock to drive up its value seemed to be a motivational and somewhat humorous story. It captured public attention with the appeal of the “little guys” taking on the “system.”
I thought my son’s
To get a quick tutorial, I reached out to as many folks as I could who were familiar with the saga. As it turns out, many Gen Z friends and relatives were involved in the evolving story. One of my more enlightening experiences occurred when my 22-year-old Marine veteran nephew asked for advice on his GameStop stock. His question was whether to buy more or cash out. His initial $13 investment was now worth about $3,300.
The fact he asked my advice was both funny and informative. I’m his uncle, not a registered investment adviser. I told him that most people who buy a winning lottery ticket tend to actually cash the ticket.
That said, it was a personal decision he had to make. I also half-joked that after gauging his results, maybe I should be getting investing advice from him.
After our conversation, I reflected on how someone who’s comfortable with technology and apparently investment savvy still desired advice from a person he trusted. He said it was increasingly difficult to sort the good guys from the bad guys on online chatrooms.
I was reminded of something I’ve suggested to bank groups for many years. Too many folks tend to confuse younger customers’ comfort with financial technology to also having high levels of knowledge with finances.
One thing does not necessarily equal the other. In fact, with far more choices and options available, the trusted advice of a banking professional might be more differentiating than ever. My conversations also reminded me of how many young people I spoke with were entirely comfortable and trusting of an app on their phone.
They appeared to be more interested in simplicity and ease of use than the actual company behind a user-friendly app. Then, this story took on an entirely different feel.
The next day, the purchase of GameStop's stock and other perceived “meme stocks” was halted by the app each of the young people I communicated with was using. (It wasn’t the only company to do so.)
Many were at first confused, and then furious. Several asked for advice on where to move their accounts. Each has since deleted that particular app. Their trust has been lost.
At this point, the jury is still out about whether the actions those companies took was proper — or even legal. But the damage to customer trust when their assurances were broken was done.
From a macro outlook, the number of customers personally impacted in this episode is relatively small. The larger issue, however, is a renewed focus on financial services companies’ principles, priorities and practices.
Ever-improving technology is table stakes in the banking game. Establishing and maintaining customers’ trust, however, remains the cornerstone of any successful operation.
In increasingly cynical times, financial institutions of all sizes need to be crystal clear — in words and actions — of your commitment to keeping your promises to customers, while steadfastly protecting their privacy, assets and data.
