Apr 25, 2009

Who to trust?

The more distant and complex our market systems become, the more consumers seek out providers they feel they can trust.

The list of groups we no longer trust as before grows weekly. Toy makers, peanut butter processors, banks of all stripes, companies with strong balance sheets and outstanding reputations that have been hammered by a global collapse in demand. Even the AARP has not been immune from criticism about conflicts of interest in controversial healthcare products they recommended and profited from

Now credit card companies – the ones were supposed to  trust – are under fire. No less than the U.S. President himself says so: 

Those who are issuing credit [should be] able to make a reasonable profit, but . . . in a way that is responsible, [where] consumers are not finding themselves in a bad situation that they didn't anticipate." 

Over-priced fees, obscure penalties, unexpected rate hikes after luring consumers with low sign-up rates, and possibly sharing customer data with others are among the manipulative practices charged against card issuers.

Nobody buys a credit card transaction, not really. They buy a shirt or a sit-down meal or something, and pay for it with their card. The card is a convenience, an afterthought, a facilitator of the main business.  At the moment of credit-card truth, people’s mind is usually elsewhere – how great the food tasted, where to shop next, etc.

No one is better positioned to take responsibility for everything involved in a commercial transaction – product or service quality, payment conditions, shipping, warranties – than the immediate vendor. Can we as consumers trust that the vendor has done all we expect to fulfill that expectation?

Consider all the new (free!) online consumer service platforms hitting the web. For example, mint.com, the on-line place that offers to help you manage your money better. Mint says, approximately, “We’re your trusted financial advisor.” If that’s the case, should part of the deal be trust that they are looking out for your interests?  When you must deal with credit card companies they recommend, should you assume they are looking out for your best financial management interests? Surely they’re better positioned to do that than you are. 

But what if mint.com is concerned about losing valuable commission money from the credit card companies they recommend? Are they holding these companies to task for the same practices our president is coming down hard on? Should they? Do they have an obligation to warn consumers that a low initial rate at credit card company X is often followed by rate hikes?

In fact, what is mint.com? A wonderful free service for consumers or a credit card broker with a free front-0end service?

My point isn’t to criticize mint.com. Many consumers need and benefit from financial management advice. My point is that in today’s world of fast-changing markets, trust is the new basis of differentiation. So companies new and old need to be diligent about their transparency and cautious about their partnerships and alliances. And not transparent in the fine print or buried in layers of web pages.

Over time, the market will sort out the wheat from the chaff, and winning face-to-the-customer providers will be those who maintain a true fiduciary responsibility to their end customers. They will be trusted.

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