Nudging in the Financial sector; how can Behavioural Science help you and your customers?
Whether it is promoting the benefits of paid bank accounts, encouraging online banking or making investing more accessible, there are many aspects of the financial sector that could benefit from nudges.
But what is Nudge?
Grounded in academic research, Nudge is a concept that utilises Behavioural Economics to create gentle encouragements that can influence the behaviour or decisions of individuals. This is not just change for change’s sake; this is beneficial change for both businesses and for the individuals themselves.
The BVA Nudge Unit has condensed hundreds of cognitive biases identified by Behavioural Economics into 21 key drivers of influence, creating a powerful tool for creating nudges.
How does this work in the financial sector?
There is little argument that customers benefit from saving for the future, whether through a standard savings account, a pension scheme or investment portfolio. Loss Aversion promotes the adoption of the desired behaviour – in this case saving – by highlighting the loss that would be provoked if it didn’t happen. For example, having a calculator tool show how much an individual would have to live on when they retired based on their current pension contributions could encourage them to save more, thus ensuring they can maintain the lifestyle they are used to.
Compartmentalising savings by focusing on the value of everyday objects rather than intangible (and often confusing) interest rates can also improve participation. Consumers better understand saving ‘the cost of a coffee’ rather than a certain percentage of their salary each month. This method also makes saving feel more achievable and less of a sacrifice.
To make saving and investing more accessible to more consumers, financial institutions could utilise several drivers of influence. The Transmitter driver emphasises the importance of having the right messenger to reinforce a message. There is a stereotype of what a mortgage or investment advisor looks like. Research by BVA BDRC finds time and again that younger consumers in particular do not want to be ‘lectured’ about financial services by someone who resembles their father.
Tools such as robo-advisers combat these stereotypes, breaking down the belief that if the advisor doesn’t look like them, the product is not for them.
In terms of industry examples, Marcus, Goldman Sachs’ new savings account, manages to keep the trusted, established principles of the investment bank whilst feeling more approachable – more like a friend.
In the mortgage industry, Habito has taken a unique approach to their advertising, seemingly targeting a younger, ‘cooler’ audience, which can encourage them to approach an industry traditionally seen as confusing, complicated and not for them.
The natural progression to shopping (and banking) online has accelerated in recent years. A 2018 study by the ONS found that seven in ten UK consumers now bank online. But how do banks encourage the remaining three?
The BVA Nudge unit have implemented the Default and Social Norm drivers of influence to successfully encourage more French consumers to declare their income online, rather than by mail. There was no financial incentive or obligation to do so, yet 1.1 million more online declarations were received in 2014 compared to 2013.
A similar approach could be implemented not just to encourage online banking in general, but also to migrate consumers from in branch to online when they want to perform certain banking tasks.
Want to find out more?
We can use nudge to encourage all sorts of beneficial behaviours, including debt management and recovery, product renewal and even the benefits of open banking – a system which will become more and more prevalent due to the legislation change in 2017.
Want to find out more about how our pioneering approach can create affordable, sustainable and transformative changes among customer? Get in touch.