Banking is undergoing enormous change, and whilst the bricks and mortar are the same — the banking sector is a money-making business after all — nothing about the design, or the look and feel have any resemblance to the banks that have been and gone.
In this digital era, with easy, fast and limitless options, decision-making has become even more difficult.
Banks can’t predict user behavior with absolute certainty, but they can help frame their financial decisions by understanding how choices are made, and designing solutions around them.
This is where Behavioral Economics, the study of how and why we make decisions, can be a powerful tool for the banking industry.
The science behind behavioral economics confirms that people make wholly irrational decisions. In the finance world, identifying which emotions come into play when people make the financial choices they do, can help bankers and those in the finance sector to understand why, whether it’s buying a house, withdrawing cash, investing money or saving for retirement.
To shed some light on the subject, we sat down to chat with the man of the moment Jeff Kreisler, a Princeton educated lawyer turned author, speaker, comedian and advocate for behavioral science. He's co-author of Dollars And Sense and Editor-in-Chief of PeopleScience.com.
He shared his thoughts with us on behavioral science applied to banking.
Change, in all its forms, brings with it concern and unrest, but also huge opportunity.
Particularly when change is imposed, it is often hard to see beyond the regulations and embrace the possibilities. Banking, having experienced relatively little change in recent times, is now on the cusp of considerable transformation in the shape of PSD2, or the Revised Payment Service Directive.
Co-founding Strands came as a natural next step for me after a degree in computer science from the Technical University of Catalonia (UPC) and a PhD in Artificial Intelligence from the EPFL in Switzerland.
Prior to setting up Strands with Francisco Martin in the US, Professor Boi Faltings and I had co-created and sold a company using AI for travel planning, which at the time was a huge step in innovation.
Whilst studying computer science, I discovered that logic is a mathematical tool that allows computers to model the world with symbolic programming, to solve real world problems that require some degree of intelligence, such as planning and reasoning.
Banking has gone undercover and it’s been a long time coming. We want our banks to do a lot for us, but it transpires that the less you can actually see your bank doing for you, the better.
So, it begs the question: why would banks suddenly decide to assume the Good Samaritan role after all this time? Sheer benevolence or is there something in it for them too?