Coming off the heels of the pandemic, there are increasing inflationary pressures that are impacting every consumer, putting financial wellness at risk for households at every level of the demographic spectrum. Financial institutions are in a position to assist their customers with financial education, personalized recommendations and even targeted relief.
The question becomes whether banks and credit unions will respond in a way that illustrates an understanding of the customer, an empathy for the challenges being faced, and a recognition of the opportunity for loyalty in the future. Unfortunately, the majority of financial institutions are falling short of what is possible with the technology and insights available today.
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Consumers Feeling Economic Stress
With rising prices impacting their daily lives, it’s not surprising that consumers’ expectations for future inflation are increasing. The last time inflation was this high in the United States was the early 1980s, meaning that most Americans have never experienced high inflation or its consequences. This creates uncertainty about the correct financial and lifestyle responses.
Based on previous inflationary periods, consumers tend to purchase essential items and durables like appliances and furniture, but become less likely to purchase discretionary products and services. Consumers also tend to feel a greater need for savings and reserve funds. The decision between spending and saving usually is impacted by the speed and rate of inflation.
A Personetics survey of 5,000 consumers found that 93% of consumers were concerned about the impact of rising prices and inflation on their everyday life. In response, over half (61%) were reducing their spending on non-essential items, with large percentages of consumers finding other ways to make ends meet, including reducing home energy use (43%), eliminating restaurant meals (48%), canceling large purchases (35%) and canceling vacations/holidays (25%).
In this period of economic uncertainty, it is important for banks and credit unions to realize, and respond to, the concerns of consumers around financial well-being that also impacts mental health, physical health, productivity and even social engagement.
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Financial Institutions Slow to Assist
EY defines financial wellness as “the ability to make confident, well-informed money-related decisions resulting in financial security for both the short and long term.” To achieve financial wellness in times of stress, consumers want their financial institution to support their financial well-being, assisting in giving them confidence in their ability to spend, save and invest safely.
Customers want more than just chatbots and account updates from their financial institution. They expect proactive digital dialogue that provides ways to improve financial security.
A fifth of consumers think their bank doesn’t care about the financial pressures they’re under.
Unfortunately, consumers responding to the Personetics research said their financial institutions is not doing enough to help. While more than half (51%) of respondents said they wanted more help than they’re getting from their bank when it comes to managing their money, only slightly over one-quarter (26%) of consumers said they had heard from their financial institution in the past three months regarding the economy.
According to the research, even those who had some communication from their banking provider were unhappy about the generic advice they received (66%), with only 37% of those receiving personalized messages (less than 10% of the entire consumer marketplace). The result was that 21% felt their bank doesn’t understand their financial needs at this time, with 20% believing their bank doesn’t care about their problems.
Consumers Demanding More From Their Bank
Consumers want their financial institution to know them, understand them, and reward them with solutions that meet their individual needs. When asked what they expected from their bank and credit union, the most common desire was for advice on how to save more money each month (30%) and for relief from fees caused when they overdraft their accounts (29%). Both of these expectations are not difficult to deliver – on a personalized basis – with the history of data and insights available to most financial institutions.
Consumers also want customized recommendations for cheaper financial products like credit cards or loans (26%) and reminders of subscriptions they might have forgotten to cancel (25%).
Most importantly, customers want their financial institution to be proactive in the recommendations offered and solutions created to better manage finances. According to Personetics, about two-thirds want their financial institution to automate their financial decisions and money management to save them time – such as automatically transferring spare cash into a savings account (61%) and to identify advance signs of financial stress and respond with solutions and advice (66%).
The Payoff for Financial Institutions
The current economic environment provides a unique opportunity for financial institutions to assist their customers across the entire customer lifecycle. Rather than waiting for a customer to take action, the payoff for delivering proactive, personalized advice and solutions has never been greater.
If financial institutions leverage their existing data and insights accumulated over years of transactions and behaviors, there is the ability to retain current customers, grow relationships and acquire new customers in a hotly contested competitive environment.
According to the research, over half (58%) of banking customers would consider switching to an organization that offers better money management features. In particular, consumers want help growing their savings and assistance with their everyday budgeting and money allocation. Consumers also want financial insights delivered that are contextual and personalized.