Fear and Uncertainty in Financial Services

Thinking about the challenging times facing financial services providers in Europe, it might help to laugh a bit. However, no one's dismissing how challenging these times really are for financial service providers.

Thinking about the challenging times facing financial services providers in Europe, it might help to laugh a bit. However, no one's dismissing how challenging these times really are for financial service providers. These are probably the most difficult in large part because so much feels outside the control of financial providers. There is political uncertainty, economic uncertainty and, of course, business uncertainty.

Using Factiva, a news article database a search for the use of the word "uncertainty" and its derivations in Reuters Newswires published during 2011 shows up roughly 24,000 articles during the year. Spiking early in the year, settling a bit, and then rising steadily each month across remainder of the year right up to the Christmas Holidays.

At the epicenter of financial uncertainty is Europe. In those same Reuters articles where CEB saw the use of the word "uncertain," The European Central bank showed up more than 800 times followed by the IMF. A good distance ahead of all others. Both institutions are also at the centre of the European sovereign debt crisis.

The word appears so many times because the financial services industry has a love/hate relationship with uncertainty. On the one hand, it is central to why institutions exist and how they make money. Everyday providers assess the probability that a business or consumer who borrows will repay their loan. The more uncertain the times, the more institutions charge. If there was no uncertainty, there would be no need for financial providers, risk management skills or risk management systems.

But when uncertainty becomes too great it can overwhelm an institution. It evolves from the lifeblood of this industry to a poison. It paralyses providers. Financial services companies find they don't know what to charge, what to build or what to invest in. So providers pull back, seek cover and wait for the uncertainty to pass. That almost primal instinct to seek safety is present across European Financial services. CEB sees it in at least three ways:

•In actions of providers. Facing uncertainty about capital positions, access to financing and overall economic activity, banks have tightened credit standards and pulled back on lending.

•In the actions of customers. Uncertain about the future, about demand and employment, corporations and consumers have also pulled back. European consumers have been deleveraging for more than two years now. In 2011, consumers pulled back even more as borrowing declined by more than 2 percentage-points year over year.

•In the corrosive effects of uncertainty on client and partner confidence. Fairly or not, they see financial services firms in the headlines. They read about the downgrades and the exposures, and their lack of confidence in the industry becomes a lack of confidence in every aspect of the business.

CEB surveyed more than 8,000 European consumers each quarter during 2011 and confidence in the financial services industry fell every time. Consumers lack confidence that providers can keep customers' money safe, care about them, share their values and offer clear and simple services.

The Role to Resolve

Financial institutions must move past uncertainty and instead find "Resolve." CEB finds that the road from uncertainty to resolve passes through "Clarity." When providers replace uncertainty with clarity they enable action. They can understand what the real problems are and take tangible action to address them. Uncertainty will never be eliminated, but if financial providers can eliminate much of the noise that overwhelms their business and that hinders their ability to act. Here's how financial service providers can tackle the most pressing questions around uncertainty.

•Uncertainty: How do I deploy new technology capabilities effectively?

Start inside - Faced with all this cacophony of potential, it is really easy to throw money at all the wrong things. We showed that the best banks have taken three steps to leverage the Social

oThey started - enabling social exchange within their organizations as a way to learn.

oThey added clear and compelling value to customers.

oAnd they made themselves easy to reach.

•Uncertainty: How has the downturn changed my customer?

Precisely - Move away from a jumble of characteristics and move towards six segments defined by wealth, age, life events and attitudes. Not dozens. Six.

•Uncertainty: What do I need to do differentlyManage the Moments - CEB research shows that when it comes to small business owner and RM interactions, performance at four moments separates high performers from low performers. Providers don't need to coach on every type of interaction and all of its nuances.

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