Why Banks Must Change Their Approach to Financial Wellness

In the current economic climate, many Americans are experiencing an uncertain financial future. Younger consumers especially don't have the know-how to improve their financial situation, and yet their bank or credit union isn't offering the support they need. Here are three ways financial institutions can come to their aid.
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Two thirds of U.S. adults say money is a “significant source of stress,” according to a survey by the American Psychological Association. And money-related stress is even higher among younger adults ages 18 to 43, registering at 82% for ages 18 to 25 and 81% for ages 26 to 43.

But when it comes to helping them feel supported, most banks and credit unions aren’t getting it right. Many are still focused on being fast, convenient and efficient. While those are still important factors, they no longer have the biggest impact on customer satisfaction.

In the current economic climate, and with the acceleration of digital adoption, the factor with the greatest influence on customer satisfaction is offering support to consumers during difficult times, J.D. Power found.

While soaring interest rates, rising inflation and overall economic volatility are impacting all generations, financial institutions need to bear in mind that this is the first time younger Americans are experiencing this degree of economic uncertainty.

Financial institutions can’t wait another year or more to start shifting their approach to financial wellness. Change needs to happen at the speed it did at the height of the pandemic when banks and credit unions rapidly stood up access to relief loans, work-from-home staffing models and self-service capabilities in place of in-person interactions.

If the past three years have proven anything, it’s that this industry can move fast.

What can financial institutions do right now to shift their approach to financial wellness? Three steps stand out.

Get Serious About Transactional Data

People don’t always have the knowledge or skills to improve their financial situation. But with financial uncertainty at an all-time high for many Americans, there’s surging demand for financial preparedness tools and advice beyond education.

Banks and credit unions have a leg up on nontraditional providers. They have deep knowledge of their customers and members, from their age and income to their homeownership status. They can glean insights into where they shop, dine and seek entertainment, and how much they spend on those things.

They can look at transactional data to determine how much money they’re paying towards a car or mortgage payment, even if the loans aren’t with them. And they can see what financial challenges they’re facing, such as missed payments, low balances, frequently overdrawn accounts or not being pre-approved for a credit card.

But when it comes to mining that data and using it to the best of their ability to provide financial guidance and advice, the reality is many banks and credit unions are not succeeding.

Telling Stat:

60% of U.S. banking consumers want their primary financial institution to provide personalized financial advice, according to an NCR survey.

In these challenging times, financial institutions need to do more to analyze the data they have to gather insights that can help them reach consumers with relevant, timely support. It needs to be a key component of their financial wellness strategy, because consumers, as well as small businesses, want their banks and credit unions to serve as their trusted advisors, proactively guiding them on their journey to a more stable financial future.

Make It Personal and Human

It’s no longer as simple as looking at demographics and life events to predict someone’s next step or financial need, whether that be to purchase a home, secure a student loan or prepare for retirement. Financial institutions need to work smarter to better understand each individual’s needs so they can contextualize and personalize their experiences.

Doing so can help consumers make smarter financial decisions at their exact moment of need, in the channel they prefer. A financial institution’s transactional data can help them offer those individualized experiences.

A Gen Z consumer who recently graduated from college and only banks from her phone will have vastly different needs than a small business owner struggling to remain in business. Imagine that the Gen Zer is receiving a steady paycheck and making her monthly student loan payments on time. But she’s also charging expenses to her credit card and not paying off the balance each month. Her spending exceeds her income, and she’s frequently hit with overdraft fees. She appears to lack the financial literacy to break free from this cycle.

These bits of knowledge can be gleaned from her transactional data and used to turn this customer challenge into an opportunity to foster a lifetime of trust and loyalty. Her bank could be using these insights to help her improve her financial situation by encouraging her to set up a low-balance alert to inform her in advance of overspending. Or it can let her know about the free personal financial management tool she can use to help manage her budget and cash flow.

Even offering to set an automatic budget for dining out based on recent spending trends can help position her bank as a trusted advisor — and help her become more financially fit. Her bank could also show her how to set spending thresholds, so a transaction gets declined if it’s going to push her over budget.

Consumers Value Personalized Tools:

When consumers were asked by J.D. Power how they'd like their bank to personalize their banking experience, 46% said by helping them avoid fees, and 37% said by receiving account alerts.

Financial institutions can also lean into virtual and live support to help humanize the experience. Whether through artificial intelligence (AI) or person-to-person interactions, human-centric experiences can help expand reach and deepen engagement.

An intelligent virtual assistant can facilitate personalized financial guidance in an automated way using AI by allowing a person to ask a question and receive an immediate answer. And if the question warrants a live conversation with an expert, a seamless handoff can be made to a live human.

AI and live chat can bridge the gap between the personalized service consumers want and the individualized experiences financial institutions can offer. From basic questions about budgeting to helping create and track personal financial goals, the opportunities to humanize the financial wellness experience are limitless.

Offer Tools that Encourage Financial Proficiency

Financial literacy is a critical life skill, and while more states are now mandating that it be taught in the classroom, there is still a ways to go. From credit- and debt-related topics to understanding the multitude of payment options, consumers need the education to build their financial literacy, especially those who are less financially experienced.

Dig Deeper: Cultivating Trust in a Complex Payments Landscape

Banks and credit unions must offer financial education to help their customers and members become more financially savvy. And they can encourage healthy financial habits, drive higher engagement and make financial literacy fun by educating them through interactive, gamified content and learning modules.

With solutions like Zogo, financial institutions can encourage financial literacy through loyalty programs that offer rewards. And the programs can be customized to the individual organization’s goals, all while rewarding the consumer for taking financial action within the institution’s digital banking solution.

And while literacy is essential, proficiency is vital. Consumers must start by building their knowledge, but financial institutions must also put them in the driver’s seat to take action. Providing access to tools that can help them actively set and manage a budget, engage with a banker, set spending alerts or calculate when they’ll be able to pay off a loan puts them in an active role in managing their financial well-being and helps them become more proficient.

Going the Extra Mile:

Helping bank customers doesn't stop with financial literacy. People need access to tools so they can apply their financial knowledge.

Financially healthy consumers often become more engaged consumers. And with increased engagement comes greater revenue and the opportunity to cross-sell and upsell other products and services.

The time is now for banks and credit unions to move fast and give consumers the know-how and the tools to build a healthier financial future. They can’t afford to wait.

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