As the financial ramifications brought about by the pandemic continue to cause anxiety and distress for millions of households across the world, one theme that has become increasingly relevant over the past year is that of financial wellbeing. People are now more reliant than ever on their banks for financial support, and if anything, the pandemic has been a serious wake-up call for banks to look after their customers’ financial health and prioritise a financial wellbeing strategy.
A strong proponent of this view is Elin Helander, the Chief Scientific Officer at Dreams, a financial wellbeing platform that uses behavioural economics and cognitive science to develop engagement banking solutions for some of the world’s largest financial institutions. As a former neuroscientist, Elin and her team at Dreams use scientific research to help the company’s product development and innovation teams, which in turn equips banks with the necessary tools to boost their customers’ financial wellbeing and drive customer engagement.
Here, Elin explains why prioritising financial wellbeing is no longer an option for banks, but a business imperative, and lays out how a customer-centric, scientific and values-based approach will help ensure that banks survive in this increasingly competitive industry and remain the custodians of their customers’ wellbeing.
Simply put, financial wellbeing refers to the desire to feel good and confident about one’s financial situation. This is by no means a new phenomenon, and it arguably existed as far back as 3,000 years ago, when our Lydian ancestors first began minting their coins and associating specific monetary values to them.
However, recent demographic, technological and societal changes have supercharged the relevance and importance of financial wellbeing. In particular, the increasing digitalisation of human culture has brought about a society conditioned by one-click shopping and same-day delivery services – and this demand for increasingly personalised services has slowly filtered its way into the finance industry. People now view their finances in an entirely different way than they did ten or twenty years ago. Rather than seeing money in terms of its transactional functionality, people have come to view it as a way of supporting their overall wellbeing and their ability to efficiently spend, save and invest.
Traditionally, financial institutions have not typically played a big role in promoting their customers’ financial wellbeing, and attaining this kind of financial wellbeing was previously a matter of personal responsibility. However, customers are now projecting much higher expectations onto their banks and have become much more critical of banks that neglect looking after their wellbeing and fail to help them effectively manage their finances.
With the events of the past year, and the sheer economic impact brought about by the pandemic, this general sentiment, and in particular, people’s desire to feel in control of their finances, has soared quite significantly. As fintechs and challenger banks are continuing to develop new and creative ways of servicing the needs of the modern-day consumer, and offering greater opportunities to help people manage their financial health, banks could risk losing significant market share if they fail to show their customers how their products can create long-lasting value.
Fundamentally, the key to turning financial wellbeing into a banking business model is to move away from a product-focused strategy and revert to a customer-centric approach. According to the PwC Retail Banking 2020 Overview, 61% of bankers say a customer-centric business model is “very important”, yet only 17% are “very prepared” for it. Far too many banks are significantly falling behind in terms of engaging their customers and developing services that truly serve their needs. This boils down to the fact that banks have traditionally thought about products and accounts rather than people and their needs, prioritising hard data over the challenge of understanding their customers’ emotions. Instead of pushing products, banks need to create emotional engagement with their customers and coach them in their daily lives.
In fact, according to a Harvard Business Review article, emotionally connected customers are 35% more valuable than highly satisfied customers. Creating this sort of emotional engagement requires not only that banks develop more personalised financial services, but also that they understand their customers on an emotional level in order to ensure that their values are more closely aligned.
In many ways, we need to return to a model of banking similar to that of a hundred years ago, when the human element of banking was much more tangible and people used to have closer relationships with their bank. In the past, you had to physically visit your local bank branch in order to manage your finances, but with the rise of digitalisation, this personal connection and level of customer care has somewhat diminished. However, rather than viewing digitalisation as a threat, banks need to see it as a substantial opportunity and a vital vehicle for supporting their customers’ financial wellbeing.
Digital channels can provide a great platform for banks to create individualised, personalised and tailored interactions with their customers, and showcase that they really care for their well-being. Banks can incorporate a number of features into their mobile banking apps to foster this emotional connection with their customers and embody more of a “personal finance coach” role in the relationship. For instance, “nudges” are a behavioural science concept that use small suggestions and rewards to affect change, which can help customers make better financial choices.
Implementing such scientific insights are vital in helping banks better understand their customers emotionally but also design experiences that support their overall wellbeing. For instance, one piece of research that Dreams has conducted together with collaborators at UCLA (University of California, LA) has shown that by thinking about ourselves in the future and then rewinding back and thinking about our current self, we have a tendency to save more money for long-term purposes. This is one of the many scientific insights that our product innovation team has leveraged in order to develop some of our financial tools, centered around goal-setting and harnessing an individual’s ability to be more empathetic towards their future selves.
By drawing upon the world of behavioural economics and cognitive science, prioritising their digital channels as their number one innovation focus, and putting their customers’ financial wellbeing at the core of their strategy with a values-based business model, banks will be able to create new dimensions of customer engagement, increase loyalty to their brand, and attract new audiences while future-proofing their revenues.
Ultimately, the pandemic has brought about an urgent need for banks to shift their value proposition to be more customer-centric, and those that succeed may well have the opportunity to become the frontrunners in the rapidly growing financial wellbeing movement.