ESG may be all the rage, but what about retail banking?
The deposits you make with your retail bank for personal and business accounts support the bank’s ability to make loans and investments. Loans and investments fuel growth. Simply put, a bank’s capital can be funneled into fossil fuels or renewables, into loans to local businesses, or financing environmentally damaging projects.
Imagine if all retail banks required environmental impact assessments for loan applications. Or committed a certain percentage of loans and investments for renewable energy projects.
This is certainly a vision that all climate-conscious citizens can support, and the opportunity to influence the banking industry as citizens is great. Most US households (93 percent) have a checking or savings account while only 52 percent own stocks.
Why aren’t more people choosing to do business with climate-friendly retail banks that have clear environmental investment and lending policies?
So why aren’t people choosing more to do business with climate-friendly retail banks that have clear environmental investment and lending policies? Last February, I started empirical research to find out the reasons people don’t switch to green banks.
I’ve narrowed down the pool of participants to people who identify as “climate activists” or “environmentalists”. The study was designed to organize a series of in-person focus groups in Europe and the United States. I completed two focus groups in Europe before suspending the project due to COVID-19. While more research is needed, some information can be gleaned from this small dataset. I am sharing the intermediate results here for the first time.
During the opening discussion in both groups, the majority said they had not made clear decisions about where to bank. A participant in her early 20s, an ardent Swiss climate change activist, said her parents opened her bank account and she never questioned it. Others said they chose the less bad service option and didn’t think about the choice again.
The most common responses from both focus groups were about a lack of information on what good alternatives are and how to get more information about their banks’ current investment policies. Many participants expressed a feeling of being overwhelmed by the idea of trying to find this information and make the change.
What I heard matches the published research. Many people only move their bank accounts during a time of transition, such as starting college, moving to a new city, starting a new job, or getting married, and then stay there unless some event occurs. disruptive to happen. Many people just start with the most convenient bank and stick around. The US national average age of a US checking account is 16 years old. I am no different; I opened my first account my parents banked in and kept it there for over a decade.
As the conversations developed, emotional reasons emerged as driving forces behind the inertia. Two of the youngest participants (aged 20 to 25) expressed frustration at not feeling that they had any power as a young client of a large bank. One of them said bluntly, “Who am I to ask them about the bank’s investment policies? The bank manager has all the power. My account is tiny.”
Older respondents (in their 50s) expressed a different emotional factor: cynicism. In the first focus group, the conversation shifted to how could they really believe anything a bank says, including well-known green banks?
The responses fell into three categories which correspond to Dan Heath’s Chip and Switch Frame. This frame applies the image of a rider on an elephant trying to guide the elephant on a path. The elephant, symbolizing our emotional body, must want to leave. The rider, symbolizing our spirit, must also want to go. Our minds are lazy, so change must be easy. Finally, the path must be clear, without obstacles or unacceptable costs. If one of these three conditions is not met, the change will be difficult. The customer will not change bank.
Using this simple framework, we see the results of the focus groups reaching all three categories of types.
Banks need to address all three types of barriers to allow more people to make the change. In other words, just providing the information will not be enough. Banks need to ensure that the process of change runs smoothly and that feelings of loyalty, security and possible skepticism are taken into account. Customers should also feel welcomed as valued and equal partners.
We look forward to coming back when it is safe to hold more in-person focus groups and develop this research. In the meantime, the lessons learned from the bank can be applied to other products and services. How do you address yourself:
- Pilot: Do your customers know that your “green”, climate-friendly product exists? Can they easily find relevant information?
- The Elephant: How do you help customers believe your statements? How do you make them really feel welcome?
- The way: are your products really easy to find? Do you need to woo new customers from “sticky” loyalty programs?
Let’s continue the conversation. Leave a comment here or contact me at [email protected].