How to Overcome the 5 Most Common Obstacles to Growth in Banking

Financial institutions often try to change customers’ behaviors by increasing the quantity of communications, but they overlook how people actually make decisions (including their own staff). By applying reshaping perceptions and addressing inherent biases, banks and credit unions can create better customer experiences.

Dutch philosopher Alexander den Heijer said, “When a flower doesn’t bloom, you fix the environment in which it grows, not the flower.” Not surprisingly, many organizations try to fix the flower.

This happens all the time, from culture-change initiatives to brand strategies, where the veneer is the focus of change and not the behaviors that underlie it. To often banks and credit unions become mired in their own “way of doing business” and spend an inordinate amount of effort trying to influence customers’ decisions using their own processes and terminology, instead of looking at how their audiences’ think.

Science tells us that decision making may be both rational and irrational. Harvard Business School professor Gerald Zaltman found that 95% of our decisions take place in the regions of the brain where emotions and intuition originate, and are shaped by personal experiences, beliefs, impressions, and biases. In short, we are less rational in our decision making than we want to believe.

The takeaway: The idea of consumers as rational actors who make decisions to buy or use products and services with purely rational thinking is clearly flawed.

However, financial marketers can use this knowledge to their advantage. Rather than trying to fight these predispositions with more logic and data, we can instead improve our understanding of how cognitive biases impact the way we present, market, and sell services.

The Five Most Common Roadblocks

There are five mental biases we come across most frequently in financial client engagements. Most of them relate to the consumer, some to employees, and some to both:

1. Negativity bias. This is the tendency to remember negative experiences and emotions more vividly than positive ones. In short, customers who have had bad past experiences with other financial institutions will enter new engagements with this predisposition, and it will take more effort on the new institution’s part to overcome it.

Bias in action. A customer trying to open a new checking account at another institution had to come into the branch, wait over 30 minutes to meet a personal banker, and then had further delays from computer issues and paperwork confusion. The customer remembers this experience as an incredibly frustrating and inefficient use of time.

Counteracting this bias. While you can’t know what previous experiences customers may have had, recognize the possible scenarios which may have occurred in your own organization and develop ways to minimize unavoidable pain points. Even better, explore new ways to circumvent them altogether — e.g. enabling consumers to set up a checking account online.

2. Job conditioning. Or as Mark Twain put it: “If your only tool is a hammer, all your problems will be nails.” Also called “Nerd View” or “Curse of Expertise,” this is our tendency to look at things from the point of view of one’s own profession or special expertise, rather than from a broader perspective. This bias often manifests as a communication gap, where financial institutions use language and terms the customer doesn’t truly understand, and in turn, creates a misalignment of expectations.

Bias in action. A customer comes into a branch to discuss savings options. As the conversation kicks off, the banker discusses products including high-yield money market accounts, certificates of deposit, and treasury bills, along with yield rates – none of which the customer doesn’t deal with daily. They find the engagement confusing, intimidating, and frustrating.

Counteracting this bias. Recognize that not all people are the same, and not all consumers are familiar with your industry terminology. Always default your conversations and communications to simple, clear, easy-to-understand language which minimizes technical jargon and is framed in an everyday parlance.

3. “Bikeshedding”. Also known as the “Law of Triviality” or “Parkinson’s Law,” this is the propensity to give disproportionate weight to trivial items or issues. The term comes from the fictional example where a committee’s job was to approve the plans for a nuclear power plant but spent the majority of time on discussions about minor and easy-to-grasp issues, such as what color to paint the staff bike shed. Customers often struggle with this when presented with a large quantity of complex decisions.

Bias in action. Customers who are in the process of getting a mortgage loan are presented with reams of documents to review and sign, all of which are lengthy and convoluted. Most won’t read through the details and ask relevant questions, instead they fixate on, say, closing cost fees. Their focus on these comparatively small elements of the process indicates they’re overlooking potentially more important parts of the agreement.

Counteracting this bias. The best approach is to address this behavior before it begins by walking through important information in simple terms. In addition, customers can provided information in advance through videos or other guides.

4. Framing effect. This occurs when people decide on options depending on whether they are presented in a positive or negative light. For example, the choice of a “90% chance of success” versus a “10% chance of failure.” This is one of the largest biases in decision making and it underlines the importance of how something is described.

Bias in action. A customer receives a promotional mailing about a free checking account offering. The message frames the savings as $2.50 a day, which provides little framework for the entire scope of savings. In addition, this message framing lacks uniqueness from similar offerings from other institutions.

Counteracting this bias. Reframe the message to something tangible that customers can easily envision using or having in their lives. For example, presenting the savings as ‘equivalent to one coffee per day’ helps them visualize the savings in a different way. Or, in other circumstances: Saving enough for ‘that little black dress you’ve had your eye on’.

5. Status-quo bias. Any change from the current state of affairs is perceived as a loss or too risky to consider. This bias can occur within financial institutions, where the adoption of new processes and technologies are resisted, or with customers, where new approaches or designs are rejected due to their difference from more commonly known standards.

Bias in action. Even though the institution has taken a lot of time and money to create a mobile platform for digital deposits and account management, some customers resist installing or using the app and continue with their regular pattern, which is to come into a branch.

Counteracting this bias. Counter to traditional thinking, extensive communications and promotions will not change entrenched consumer behaviors. Change requires reducing perceived risk and effort of making a change. A bank or credit union instead could provide a cash incentive or eliminate monthly fees to encourage adoption. Alternatively, perceived risk and effort could be reduced by providing a hands-on app walk-through, outlining how it works and illustrating it’s convenience.

You can’t fully avoid all these human biases, but by better understanding their influence, banks and credit unions can get better at recognizing customer situations where these biases are likely to operate and take steps to uncover and counteract them.

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