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.
Why Should Banks Care About Behavioral Economics?
The industry now has access to infinitely more data and insight about all manner of things. Business strategy is simply no longer strategic if all the available knowledge is not used to define —and meet— the needs of the target audience.
Our need to better understand customers will only increase as technology makes the role, access and power of that consumer shift. Insights into the way users think, make decisions, and interact with products and services will define how businesses target their efforts for maximum effectiveness.
The financial sector is no exception.
A paradigm shift within the banking sector undeniably requires an overhaul of impressive dimensions, putting emphasis on the needs, wants and actions of the newly empowered account holder.
If we want users to act on data, increase or simply just begin saving, investing and even just thinking about their retirement, we need to go beyond data analytics, and focus our efforts on how —and why— people make decisions. This is where behavioral economics come into play, drawing conclusions from the motivations behind people’s financial decisions; the psychology of human nature, that drives our actions, both good and bad.
The way we justify the purchases we make, how we save or plan for the future and of course, how we can trick ourselves into overspending. Our irrational behavior is most commonplace when dealing with something as fundamental, and as emotionally-charged, as money management, with the vast majority of us committing the same mistakes over and over again.
Strands believes that it is possible to help customers make better banking decisions, because at Strands we are convinced that, in the future, banks will have an entirely different relationship with their customer.
That relationship will be based upon an understanding of who their customers really are and why they do what they really do, i.e. based upon behavioral economics.
Before banks begin redesigning banking with behavioral economics in mind, a clearer understanding of its importance is key. Banks will obtain a broader perspective of client activity, transactions, mental state, and emotions, allowing them to become more relevant and contextual.
With this ebook, Strands and Jeff Kreisler, Editor-In-Chief of PeopleScience.com and co-author of ‘Dollars & Sense’ (with behavioral economist Dan Ariely), will put it all into context, offering examples and an overview of the financial industry’s efforts to create experiences that move users in the right direction.
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