20 November 2014

Can Banking Services Go from Utilitarian to (Truly) Useful?

Banking (consumer) services are, well, utilitarian.

For quite some time now, (some) banks tried to become more user-friendly, more humane and to focus a bit more on the people side of their business and less on the technicalities of numbers.

Despite, or maybe because of, these efforts, many bank customers have a difficult time understanding how (some) banking products and services actually work.

Moreover, some bank customers exhibit what seems like irrational behaviour such as having at the same time both savings and loans.

One might believe that such behaviours are caused by lack of knowledge, but, most often, this is not the case. Moreover, financial literacy has been proven to have a similar effect as holly water. It does not do any harm, but neither does it do any good.

Even financially literate people still show the same biases as naïve consumers.

The reality is that many (apparently) irrational behaviours related to money, including having simultaneously both savings and loans and paying very high interest rates for buying seemingly useless fancy products, are driven, in fact, by a form of profound rationality – evolutionary rationality.

Most learning programs, articles and books on behavioural science focus on presenting, (sometimes) explaining and giving insights on exploiting these deviations from economic rationality.    

The real challenge for banks (and other financial services) is to develop products/services that incorporate these behavioural science insights.

For example:
Up to now, some (many) banks developed payment tools that harness the cognitive shortcomings of people when considering money matters.

These payment tools make payments easy and with a low level of pain of paying.

At first glance this is great. People spend more easily, they enjoy shopping, the merchants are happy because they sell more, banks are happy because they earn money etc.

Things aren’t as straightforward as they seem at first glance. Indeed, people enjoy shopping and a lot of purchases would not have been made if the pain of paying was higher. However, many people would like to be more moderate on their shopping behaviour.

Opening the gates to easy spending brings the joy of buying, but it also brings the regret (and anger) of over-spending.

Apparently the goals of enjoying spending and avoiding over-spending are antagonistic. But there’s at least one way of conciliating the two goals and developing payment tools that fit what people want.

The main challenge banks and financial services, overall, face is to become truly useful and not just more utilitarian.

In order to avoid obsolesce,

 Truly Consumer-Centered Banking Services
Need to Incorporate these
Behavioural Science Insights.

Oh… almost forgot: It’s 2.5 hours long and very affordable, especially for banks ;)

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