Both Banks & Fintechs Blow It With Financial Wellness… What’s Wrong?
Subscribe to The Financial Brand by email for FREE!
Many consumers are looking for tools or educational programs to increase their financial wellbeing. They are asking for help in understanding complicated financial products. But why do so many banks and fintechs find it difficult to offer this to their customers?
According to a survey by PYMNTS.com and Unifund, more than two in five consumers (44%) who described themselves as living from paycheck to paycheck were “extremely” interested in becoming more financially literate. In a separate 2019 survey by the National Foundation for Credit Counseling, only 25% of consumers said they turned to a bank or credit union for financial information, up from 32% the previous year.
There seems to be a great opportunity here for financial institutions, but many have not yet taken advantage of it. One big reason is that the nifty digital budgeting apps that many institutions offer have very limited functionality. Consumers need tools that not only help with life events – such as a mortgage calculator – but are also integrated into customers’ everyday lives, emphasizes Ernst & Young.
Key to take away:
Financial institutions need to offer their clients powerful contextual advice that is built into their day-to-day financial work.
“Ultimately, it’s not about making the macro decisions for the macro moments and being able to afford them,” says EY, “it’s about being able to make and make the micro decisions for the micro moments on the go. It’s about viewing finance as a benefit – a service that is always available to support our general wellbeing, while having enough confidence in our ability to spend, save, and invest that we can fully focus on ourselves Our everyday life can focus on life, workplaces and society as a whole. “
( Continue reading: Financial wellness tools are pushing fintech deeper into the banking sector)
Targeted digital “nudges”
For people of a certain age, this type of technical guidance may seem a bit extreme. In the past, financial well-being (not so called) was a matter of personal responsibility and prudence. But like so many other opportunities, including physical health, digital technology has created very specific apps to improve the customer experience. As EY notes, consumers accept and expect such advice in their financial lives as well.
Cornerstone Advisors’ senior director, Sam Kilmer, says banks and credit unions can do this by embedding “nudging” recommendations into processes that have contextual meaning to their clients.
That means “integrating banking into retail,” explains Kilmer. “What this process or pain point is differs depending on the type of customer. This is why affinity niches can be so powerful. An impetus to a dentist / dental office will likely be different than a new parent, musician, or college student. In other words, understand your customer and embed nudges and content in their world. “
Ernst & Young comes to a similar conclusion and cites the example of the African digital bank Discovery Bank, which, in addition to rewards (vitality points) for responsible behavior, healthy eating and exercise, is supposed to help its customers to improve their understanding and financial behavior.
“Also, banks need to be more proactive in helping their customers achieve lasting financial prosperity so they can retain long-term loyalty in the age of the confident consumer,” the company concludes.
Why fintechs also miss the boat at Financial Wellness
An often recommended step that banks and credit unions can take is to work with fintechs. But are fintechs really doing a better job of providing their customers with integrated financial wellbeing?
Industry analyst and Forbes columnist Ron Shevlin says many fintechs have sprung up to deal with aspects of financial health. The problem is, they are only aimed at solving specific problems rather than promoting general financial well-being.
REGISTER FOR THIS FREE WEBINAR
Why financial institutions are missing out on an untapped opportunity
This webinar shows how different groups of the population see insurance and what motivates them in the buying process.
Wednesday, October 6 at 2 p.m. ET
Specifically, they only deal with things like developing alternative credit ratings for consumers with thin credit files or providing access solutions to earned wages for consumers who would otherwise take out payday loans, Shevlin says. “Fintech companies offer individual patches for consumers who suffer from serious (financial) health problems.”
Take budgeting apps, for example. They are perhaps one of the most famous consumer financial health tools to emerge during the fintech era. Kilmer says these apps are often too far removed from customers’ overall financial lives to be useful.
The thin one:
Consumers shouldn’t have to invest a lot of time in using financial wellness apps, but should receive the right advice at the right time.
“Real help [for customers] happens in real time and costs the customer less time, ”says Kilmer. “It’s like, ‘Hey, tell me something about myself that is important that I don’t know and offer to do something smart that actually works.'”
Gimmicks aside, fintech partnerships make sense
An analysis by consultancy 11: FS notes that while fintechs have played a role in promoting financial wellbeing in some areas, such as:
“Now look at Buy Now Pay Later, which is being presented as a safe convenience, not what it really is: a new take on an old way of getting into debt.”
– 11: FS
Fintechs, “tell a great public relations story about how bad banks are, using technology to“ disrupt ”legacy players,“ democratize ”and“ empower ”consumers,” the company explains. “It’s a clever marketing gag, but nothing fundamentally has changed.
“Look at the challenger banks: they may not charge as much, but since they are dependent on interbank revenue, they have every reason to incentivize users to spend money, to spend,” says 11: FS. “Or Buy Now Pay Later services presented as a secure convenience rather than what they really are: a new take on an old way of getting into debt.”
Still, banks and fintechs have the opportunity to work together and leverage each other’s strengths to help consumers better manage their financial lives.
Surveys show that the vast majority of low to middle income consumers view their financial institution as a source of financial guidance.
( Continue reading: 6 Keys to Designing a Top-Notch Financial Wellness App)
Rochelle Gorey, CEO of digital financial wellness company SpringFour, said: “With the right support, banks have the ability to fully empower their customers to meet their financial challenges, seek help and find ways to improve theirs Reduce household costs. Leveraging the know-how of fintechs is an important step in improving the financial future of individuals and companies alike.
Digital solutions from well-known fintechs enable banks and credit unions to integrate curated and audited financial aid resources into their offerings, according to Gorey, and also to offer digital self-service options for customers. “Not only does this bring financial resources into the hands of customers,” says Gorey, “it also helps customer service reps be more positive about their ability to serve their customers.”