Leveraging The Power of Behavioral Science in Banking

Advanced analytics and digital technology empowers financial with deep insights into consumer behavior. Here are five examples of financial institutions using machine learning to differentiate their brands.

Subscribe TodayIn the age of advanced analytics, data is quickly becoming more and more valuable — and for good reason. Data enables banks, credit unions, and fintech companies to better understand their users, edge out the competition, and provide the right product to the right person at the right time.

However, finding clever ways to dice and display data isn’t always sufficient for changing behavior. That is, it’s not enough just to present users with data points and expect them to get their financial lives in order or to know how to handle their money correctly. Changing behavior requires much more. That’s where behavioral science can help.

Behavioral science analyzes what actually gets people to change their behavior rather than going along with whatever common sense says might work. Common sense says that we won’t constantly eat unhealthy food once we know it causes us health problems, and yet we often do it anyway. So what actually persuades people to change habits? That’s perhaps the most critical question the field of behavioral science asks.

Let’s look at five examples from various industries to see what motivates people to behave how they truly want to behave.

1. Merrill Lynch

Behavioral marketer Nancy Harhut tells about an interesting angle Merrill Lynch took to get more people to save up for retirement. The investment bank knew that for most young people, retirement is far from their top priority — an understandable situation since young people are often wrestling with student debt and saving up for their first home. And yet, everyone knows that if you save for retirement early you get far better returns at retirement.

So what did Merrill Lynch do? They had users upload a photo of themselves and then ran the photo through an aging algorithm so users could see what they would look like at age 30, 40, 50, and so on. It seems like an odd feature for an investment bank to include in their digital product, but it ended up working. Users more fully realized that they needed to prepare for the future, and they changed their behavior accordingly.

2. The iWatch

The newest version of the iWatch comes with the Breathe app, an app that reminds you to focus on your breath for a certain period each day. Because the reminder is directly attached to your body in the form of a watch, you won’t miss the alert to start and stop. The app also syncs to an iPhone so you can track how long you spent focused on your breathe each day.

We’re still at the very beginning of what’s possible with wearables, but apps like Breathe showcase an example of how technology influences behavioral science. When our technology is directly tied to our bodies, it may become easier and easier to remember to act in ways that improve our will.

It’s not hard to imagine an app that alerts you in real time when you’re about to spend too much at a grocery store that’s equipped with the kind of technology that’s available via Amazon Go (technology that can track what’s in your cart as you pick it up or put it back). It wouldn’t be surprising to see an app in the future that lets you set a budget before you enter a store and then holds you to that budget before you check out.

3. Insight Timer

Riffing on the same theme of mindfulness, Insight Timer uses the power of networks to hold people accountable to change their behavior. When you sign into the app, it immediately shows you where people are using the app all over the world — including people who live near you. From there you can find your friends and see how they’re doing at keeping up on their meditation practice.

It might seem like a small thing, but getting clued in to how your friends are behaving goes a long way to changing your behavior. You know that if you don’t perform the desired behavior (in this case, meditation), all of your friends will see it — and possibly even strangers who live near you. So you make an extra effort to make certain you’re consistent in your habits.

While finances tend to be an area where we’re more private, it’s not hard to imagine applications that incentivize you to keep to your financial goals by connecting you with your friends. They wouldn’t necessarily have to know the details of your goals, but simply by knowing that your peers will see if you binge on the coffee budget again, you might be less likely to do so.

4. SunTrust onUp

Another example from banking comes from SunTrust’s onUp program. To help users change their financial behavior, SunTrust invites them to take a preliminary quiz, share their personal stories, and attend in-person instruction about saving money. Each of these activities cues the user to pay closer attention to their financial habits, moving them closer to become financially confident.

It will be interesting to see how the onUp program develops as it integrates more fully with a range of APIs and various technologies. Even at this stage, it’s clear that SunTrust is leading the way when it comes to shifting the behavior of their users and helping them get in control of managing their money.

5. Lose It

The Lose It app combines many of the ideas listed above into a single experience. There’s a community aspect, where you can compete against for your friends for losing weight and share your favorite recipes. You can even combine your efforts and join teams that compete against other teams, making for a gamified experience. If you’re not interested in the community aspects, you can also select from a number of gamified personal challenges to tackle specific areas of fitness you’d like to focus on. These challenges are coupled with tips and suggestions along the way.

In addition, the Lose It app connects to other applications such as Facebook, Twitter, Nike+, Fitbit, etc. This enables the app to combine the behavioral benefits of these other applications, similar to how the future of digital banking is likely to unfold, with a robust mix of APIs.

Changing Financial Behavior

When it comes to things like finances, rest, and diet, human beings generally know what we should be doing. We each need just a little nudge to get us moving in the right direction. By studying examples from the field of behavioral science, banking can create experiences that help their account holders move in the right direction, making communities financially strong and improving company loyalty and well-being in the process. It’s a goal worth pursuing.

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Comments

  1. I agree with the central theme of this article, namely, that banks will need to harness consumer behavior insights in addition to slicing and dicing numbers if they can hope to truly drive behavior change among their customers. However, I’m quite disappointed with the examples. Contrary to the promise in the headline of FI case studies of ML, most of the examples are of non-FIs and none of them makes a self-evident use of ML.

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