Investigating the transformative impact of bank transparency on consumers’ financial well-being

Abstract

Purpose Grounded in Transformative Service Research, the purpose of this paper is to explore the mechanisms by which bank information transparency influences consumer’s financial well-being (FWB). The authors propose that customer attitudes toward the brand and the subjectively perceived ability of individuals to deal with the financial challenges explain the enhancement of FWB driven by bank information transparency. Design/methodology/approach A survey was conducted to test the proposed hypotheses. In total, 400 bank customers of five commercial banks in Colombia were approached and asked to fill out a pen and paper questionnaire. Serial mediation analysis was applied to test the hypotheses. Findings This research shows that bank information transparency can uplift the FWB of customers. Furthermore, the positive effect of bank information transparency on the FWB occurs because the shared information improves the positive attitudes toward banks and the perceived financial self-efficacy of customers. Research limitations/implications This paper heeds the call of current literature for improved explanations of the relationship between attempts to inform consumers about financial services and their FWB. Practical implications This research shows that managers who embrace the challenging task of improving the FWB of their customers should design strategies for more transparent information sharing with their customers. However, these strategies should be designed not only to deliver information to customers but also to increase the perceived disclosure, accuracy and clarity of shared information. Originality/value This pioneering study aims to explain the effects of bank information transparency on the FWB of consumers by drawing on interdisciplinary literature. This research is important as many banks aim to increase their information transparency without a clear understanding of the effects of these actions on consumers and therefore in many instances their efforts fail. A key contribution of this study is identifying concrete mechanisms (i.e. brand attitudes and self-efficacy) that help managers to improve customers’ FWB via information transparency. Accordingly, the authors offer suggestions for better information transparency strategy implementation.

Consumer’s subjective financial well‐being: A systematic review and research agenda

“…Banks can make adequate and timely disclosure of information–their financial product ratings, accurate data comparing their own and the competitor’s financial product offerings–voluntarily in an easily understood language. These disclosures can help their consumers to make informed decisions about their financial product purchases (Ferdous & Polonsky, 2013; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al., 2018). This information disclosure can increase FWB through two mechanisms: (a) by increasing the financial knowledge of the consumers (Losada‐Otalora et al., 2018) and (b) by improving positive attitudes toward the bank and by achieving financial self‐efficacy (Losada‐Otálora & Alkire (née Nasr), 2019).…”

“…Their role in increasing the FWB of consumers cannot be undermined. In this context, SLR has uncovered two mechanisms from published studies that banks can use to increase FWB of consumers: (a) financial information transparency (Ferdous & Polonsky, 2013;Losada-Otálora & Alkire (née Nasr), 2019;Losada-Otalora et al, 2018;Shim et al, 2013;Winterich & Nenkov, 2015) and (b) ethical selling behavior (Baker & Dumont, 2014;Ferdous & Polonsky, 2013).…”

“…First, it is considered to be a subjective evaluation of financial status that mediates between income and subjective wellbeing (Bonke & Browning, 2009;Diener & Biswas-Diener, 2002;Xiao et al, 2014;Xiao & O'Neill, 2018;Xiao & Porto, 2017). Second, financial satisfaction is the satisfaction related to an individual's present financial situation (Guo et al, 2013;Joo & Grable, 2004;Losada-Otálora & Alkire (née Nasr), 2019). The notable difference between the two definitions is the treatment of financial status and the financial situation.…”

“…The notable difference between the two versions of the definition released by CFPB is the removal of the financial future and the introduction of financial freedom in the recent version of the definition. The financial shock aspect of FWB is also articulated as scarcity (Cook & Sadeghein, 2018) or financial stress (Kim et al., 2003; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al, 2018; Mende & van Doorn, 2015; Postmus et al, 2015). The conceptualizations of financial stress, scarcity, and financial shock present in the CFPB definition have one common thread, which is that consumers experience mental and physical hardship by not having enough money.…”

“…These disclosures can help their consumers to make informed decisions about their financial product purchases (Ferdous & Polonsky, 2013; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al., 2018). This information disclosure can increase FWB through two mechanisms: (a) by increasing the financial knowledge of the consumers (Losada‐Otalora et al., 2018) and (b) by improving positive attitudes toward the bank and by achieving financial self‐efficacy (Losada‐Otálora & Alkire (née Nasr), 2019). Moreover, banks can leverage the social influence information (namely the compliance rate of others) to increase consumers’ household savings rate, thereby increasing FWB (Winterich & Nenkov, 2015).…”