Many consumers are looking for tools or educational programs to increase financial wellness. They are asking for help in understanding complicated financial products. Yet why do so many banks and fintechs struggle to deliver this to their customers?
More than two in five consumers (44%) who described themselves as living paycheck-to-paycheck were “extremely” interested in becoming more financially literate, according to a survey from PYMNTS.com and Unifund. In a separate 2019 poll from the National Foundation for Credit Counseling, only 25% of consumers say they would turn to a bank or a credit union for financial education, down from 32% the previous year.
So there appears to be a big opportunity here for financial institutions, but so far many aren’t’ taking it. One big reason is that the slick digital budgeting apps many institutions offer have very limited functionality. Consumers need tools that go beyond just helping with life events — such as a mortgage calculator — but are integrated into customers’ day-to-day lives, Ernst & Young points out.
Financial institutions must offer customers powerful contextual advice than is integrated into their everyday financial lives.
“Ultimately, it is beyond being able to make and afford the macro-decisions for the macro-moments,” EY states, “it’s about being able to make and afford the micro-decisions for the micro-moments along the way. It’s about thinking of finance as a utility — a service that is continually available to support our overall well-being, whereby we have enough confidence in our ability to spend, save and invest so that we can fully engage with our day-to-day lives, jobs, and society at large.”
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Highly Targeted Digital ‘Nudges’
For people of a certain age, this kind of tech-powered guidance may seem a bit extreme. Previously, financial well-being (not called that) was a matter of personal responsibility and prudence. But as in so many other ways, including physical health, digital technology has developed very specific apps to improve the customer’s experience. As EY observes, consumers have come to accept and expect such guidance in their financial lives as well.
Sam Kilmer, senior director at Cornerstone Advisors, says banks and credit unions can achieve something like this by embedding “nudging“ recommendations into processes that have contextual meaning for their customers.
This means, “integrating banking into commerce,” Kilmer explains. “What that process or pain point is will differ by type of customer. That’s why affinity niches can be so powerful. A nudge to a dentist/dental practice will likely be different than to a new parent or musician or college student. In other words, understand your customer and embed nudges and content into their world.”
Ernst & Young comes to a similar conclusion, and cites the example of the digital-only African bank, Discovery Bank, which, along with offering customers rewards (Vitality points) for responsible spending, healthy eating and exercising, aims to help them understand and improve their financial behavior.
“What’s more, banks need to be more proactive in helping their customers achieve lasting financial well-being so that they can secure long-term loyalty in this age of the empowered consumer,” the firm concludes.
Why Fintechs Also Miss the Boat with Financial Wellness
One often-recommended step banks and credit unions can take is to partner with fintechs. But do fintechs really do a better job of promoting integrated financial wellness to their customers?
Industry analyst and Forbes columnist Ron Shevlin says that many fintechs have arisen to address aspects of financial health. The issue is that they are only aimed at solving specific issues rather than promoting overall financial wellness.
Individually, they only address such things as developing alternative credit scores for consumers with thin credit files, or providing earned wage access solutions for consumers who would otherwise take out a payday loan, says Shevlin. “Individually, fintech firms are offering band-aids to consumers suffering from serious (financial) health problems.”
Take budgeting apps, for example. They are perhaps one of the most well-known consumer financial health tools to have arisen during the fintech era. Kilmer says that these apps are often too disconnected from the customers overall financial life to be useful.
Consumers shouldn’t have to invest a lot of time using financial wellness apps, but rather be delivered the right advice at the right time.
“Real help [for customers] is something that happens in real time and takes less of a time investment from the customer,” Kilmer states. “It’s like ‘Hey, tell me something about me that matters and that I don’t already know ,and offer to do something smart about it that actually helps’.”
Gimmicks Aside, Fintech Partnerships Make Sense
An analysis from consulting firm 11:FS notes that while fintechs have played a role in promoting financial wellness in some areas, such as eliminating punitive fees and nudging legacy brokerages to eliminate trading commissions, much still remains the same.
“Look at Buy Now Pay Later, portrayed as a safe convenience rather than what it really is: a new take on an old way to get into debt.”
Fintechs, “tell a great PR story about how banks are bad, using technology to ‘disrupt’ legacy players, ‘democratizing’ and ‘empowering’ consumers,” the firm states. “This is a clever marketing gimmick, but nothing has fundamentally changed.
“Look at the challenger banks: they may not charge as many fees, but, because they’re dependent on interchange income, they have every reason to incentivize users to spend, spend, spend,” says 11:FS. “Or Buy Now Pay Later services, portrayed as a safe convenience rather than what they really are: a new take on an old way to get into debt.”
Still, banks and fintechs have the opportunity to work together and leverage each other’s strengths in order to help consumers manage their financial lives better.
Polls show that the vast majority of low-to-middle-income consumers look to their financial institution as a source of financial guidance.
Rochelle Gorey, CEO of digital financial wellness firm SpringFour, says this means “With the right support, banks have the means to wholly empower clients to address their financial challenges, seek help, and find ways to reduce their household expenses. Leveraging the expertise of fintechs is a key step to improving the financial future of individuals and businesses alike.
Digital solutions from reputable fintechs enable banks and credit unions to integrate curated and vetted financial assistance resources into their offerings, Gorey states, and to offer digital self-service options for customers, as well. “Not only does this put financial resources into their customers’ hands,” says Gorey, “but it also helps customer service agents feel more positive about their ability to support their clients.”