Since its introduction, the notion of nudging people towards positive decisions most advantageous to themselves has been contentious. Is it ethical for governing bodies, policy makers or financial institutions to decide how consumers and citizens should choose or think? Should choice architects be in a position to dictate or structure choices, considering they themselves have personal biases? Continually, the argument is made that nudges and behavioural science intervention techniques may be viewed as manipulative as they infringe upon autonomous decision making.

What is the Transparency Effect?

As the ethics around nudging and the question of transparency arises, critics and supporters alike agree that nudges and behavioural science interventions could be made transparent by disclosing its presence and purpose to end users. Research shows that nudges can still be a highly effective tool even when we told we’re being nudged. Being honest with users about behavioural motives doesn’t result in diminishing outcomes, and transparency can actually bolster effectiveness of nudges.

How can financial institutions leverage the transparency effect in digital banking services?

Strategic transparent messaging is crucial

In order to avoid reactance and any associated negative emotions that can arise from feeling restricted and having one’s freedom of choice removed, it is crucial that banks use transparent messaging to communicate behavioural motives and highlight when nudges are in play to develop deeper, more trusting relationships with consumers. We already know that nudges can still be highly effective even when we are aware of them, so isn’t it better to be purposefully transparent and encourage healthy and sustainable financial habits in a direct and honest way that avoids reactance?

Personal Financial Management tools

When deploying Personal Financial Management (PFM) features, or financial wellbeing programs, banks can use transparent messaging to give users a better overview of their expected outgoing payments and how their cashflow is looking. Money management features should surface choices and alternatives in a way that highlights the potential outcomes of the financial decisions being made. Transparent messaging will enable users to have a better understanding of their current decision making, hopefully encouraging better financial decisioning in the long run.

Defaults as the standard, but make the opt out option easy

The setting of defaults is a highly effective behavioural science technique to encourage user buy in. While defaults often act as a reference point for users, it should always be equally easy to opt out of. The value of the opt out option in a situation with a default setting cannot be overlooked – not only is it enabling transparent messaging, it is also taking it one step further by ensuring that the intervention is being thoroughly considered by the users, thus hopefully influencing long term behavioural change.

Conclusion

Using the transparency effect by being upfront with users about nudging and behavioural science techniques should be the way forward not just for ethical reasons but also to ensure that they don’t end up being triggered by reactance. Ensuring that consumers have adequate information to make informed choices and the full freedom to choose what works best for them can create real value for both banks and users to build long term trust and value for the relationship in the long run.

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Our choices are driven by the information that is communicated to us and things that we see. As a result, we have a tendency to fixate on information that is distinctive while ignoring anything that doesn’t particularly stand out.

Why does it happen?

The word salience is defined as “the quality of being particularly important or easy to notice”. When we’re considering, building or designing a product, it is key to acknowledge that the information presented first and most prominently has the ability to affect our decision making process. Our inclination to focus on information that is unique or different leads us to the salience bias. Salience bias, however, is not limited to attention grabbing information. It can also affect our financial wellbeing and our purchasing decisions. For example, when we see a 2-for-1 deal, it is easy to be distracting by the savings rather than focus on whether or not we might need the extra item.

How can financial institutions harness the effect of salience bias to enable better personal financial management?

Positioning saving as the default option in digital banking apps

On the whole, we understand that people are more likely than not to go with the first easiest option that is presented to them. When users are presented with a saving as the default option, financial institutions are harnessing the effect of salience to encourage users to save. Since it is more effort for consumers to opt-out from the pre-programmed default, positioning saving as the default may encourage the formation of good financial habits for users in general.

Ongoing financial wellbeing programmes

When implementing a financial wellbeing program, ensuring that users see the right information at the right time is crucial. Banks can harness the effect of salience by ensuring the right content is shown at the right time to prompt users to act accordingly. Should a user be saving as soon as they get paid? Send a push notification. Are their credit card bills due? An in- app reminder might do the trick. Salient reminders can be used as an approach to nudge users into developing better financial habits in the long run.

Conclusion

It is crucial for banks to acknowledge salience bias and that it has the potential to impact users negatively if they simply focus on the most emotive and leading details at hand. However, it can also be effectively embedded into digital banking applications to support the development of better financial habits for users by ensuring that the right messaging and nudges are being communicated at the right time. Helping consumers interact with the right information at the right time is not only encouraging for users on their financial wellbeing journey, it will also help banks build a more engaging relationship with users in the long run.

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You would probably have gone with the safe option with more than 150 positive reviews. If so many people think it’s great, surely it is a safe bet? This reaction is a cognitive bias also known as social proof; a phenomenon in which we find ourselves looking outward and referencing the actions of others in an endeavour to adapt their decision making to our own situations.

What is social proof?

The social proof theory was made popular by psychologist Robert Cialdini. It posits that in situations where we’re unsure of what the correct course of action is, we look to others for guidance and to get a better sense of the right way to behave. In today’s highly digitised world, social proof can be harnessed to provide evidence of usability or popularity of a product, influence good decision making and compel users to act within societal norms and expectations.

How can social proof be applied to financial services?

Leveraging positive customer experiences as a differentiator

When it comes to creating financial products for the tech savvy consumers of today, surveys show that the challenge goes beyond just building innovative technology. For neo banks and fintech firms, there is also the challenge of convincing consumers to convert from bigger brand names they might have more familiarity with. Good customer experience is a key differentiator – even ahead of product innovation – for users right now and it helps with not just branding, positioning and visibility in the market, but also in driving fundraising and generating interest from investors.

Financial wellbeing and awareness programs

When encouraging users to embark on their financial wellbeing journey, it can be useful to harness social proof as a tactic. For example, data points derived from market research and consumer surveys can be used to exemplify how many people have benefitted from features like an auto debit savings goal. Alternatively, having gamified in- app experiences that allow users the ability to benchmark their progress against their past selves, or even others, can be a good way to keep users focused on their financial wellbeing journey.

Understanding your audience

Another way to leverage social proof is the tracking of metrics such as new and returning customer sign ups, referrals, customer reviews and mobile app downloads. Tracking social proof metrics allow companies to better understand consumers, which is important especially when launching new products.

Conclusion

Banks and fintech firms can utilise social proof to support their marketing, product development and brand awareness. It provides a solid grounding for long term meaningful relationships with consumers and has been shown to be a key factor in shaping customers’ decision making, particularly in the adoption of new digital financial products. It is especially effective when embedded within existing financial wellbeing programmes and is able to further build a consumer’s confidence in their own financial decision making and in their relationship with the digital banking provider. 

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This is known as the default effect. Automatically assigned defaults are a very effective way to encourage people to a prescribed course of action. Studies have continually observed that default options are extremely compelling as a nudging tool. As consumers, our tendency to assume that the default option presented to us is the best choice also causes us to be happier sticking to the status quo. Being twice as sensitive to loss as we are to an equivalent gain, it is unlikely that we would deviate from a prescribed default on the off chance that our deviation might result in incurring a loss.

How can defaults be applied to digital banking services?

Using social proof as a tool to encourage product buy-in

The human tendency to rely upon and make decisions based on the status quo is a fact that cannot be overlooked. Social pressure has the ability to impact our decision-making processes in real time. The rates of participation in organ donation programs globally have been known to be impacted by the defaults in place (opt in vs opt out). Consumers choices developing into social defaults has also been shown to be affected by observing the behaviour of others. Social pressure can have real time impacts on people’s behaviours, such as organ donors being in the presence of others when making their decision.

In digital banking apps with features like the configuration of spending budgets or the creation of saving goals, popular default options (like personalised pre-set amounts for budgets or relevant suggestions for goals) coupled with information like reviews of satisfied customers or statistics of how many people have benefited from the features can encourage users who are uncertain to make up their mind and instil choice confidence for both new and returning customers.

Defaults can be aspirational

From achieving a monthly savings goal to carbon offsetting with each purchase, defaults can be aspirational in nature for users to guide them to better decision making, financial or otherwise. Defaults that feel more natural are less likely to be acted against by consumers, and when applied correctly, can greatly influence our choices and conversion levels. For instance, when a customer gets paid every month, presenting them with a preconfigured ability to instantly transfer an amount to their savings account will increase the likelihood of them saving money regularly.

It should also be considered that more significant defaults require more effort from consumers to assess the emotional and cognitive costs of choosing that default. For example, consumers are less likely to adopt a default of saving $400 a month, compared to saving $100 a week.

Conclusion

Banks and fintech firms use nudging techniques to influence change, create positive reinforcements and encourage better decision making. With the likelihood of consumers staying with the default options presented to them, good financial decisioning can be engineered to an extent by effective messaging and content in digital banking apps to help users achieve their financial goals.

Setting the right defaults in a situation where decision making is challenging can nudge users towards a course of action beneficial for them in the long term. Defaults are a worthy tool to consider by financial institutions when deploying financial wellbeing programmes and enhancing their digital banking services.

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What is the Certainty Effect?

The certainty effect is an observation stemming from a behavioural model called Prospect Theory by Kahneman and Tversky that describes the inclination we have to feel inordinately confident about outcomes that are certain (i.e. 0% and 100%), compared to outcomes that are less certain (i.e. a probability like 40% or 50%) but most definitely viable. Gains and losses are valued differently, and we are more likely to make decisions based on perceived gains instead of probable losses.

A probable loss also has a greater emotional impact than an equal amount of gain, so if choices are presented in a manner of both offering the same result, it is more likely that we pick the choice offering perceived gains.

How can the Certainty Effect be applied to financial services?

Clear and concise communication

Certainty in decision making is highly valued by users, and therefore it is a great way to develop trusting relationships with consumers. For example, in a financial wellbeing challenge, providing consumers with timely updates of their progress and providing positive reinforcement as they approach their goal can develop a sense of comfort and control over their journey, helping them persevere through to completion.

Reframe uncertain messaging and offers

When it comes to communicating offers and campaigns, uncertainty can cause consumers to second guess if they want to commit to something. For example, instead of offering three apples for the price of two, offer one free apple with two purchased. The certainty is greater with a zero-priced third apple, and consumers do not need to calculate whether or not the savings on the third is proportional, making the positive impact obvious immediately.

Certainty effect in reverse

Conversely, for some consumers, uncertainty can actually prompt engagement and be used as a motivational tool. Uncertain rewards such as lucky dips and prize draws can be used to target this group of customers and maintain engagement throughout longer term challenges. Either way, a consumers relationship with risk vs certainty needs to be considered when scaffolding financial wellbeing challenges over extended periods of time and can be personalised to the individual’s preference.

Consumers would choose clarity over chance, even if this directs them towards less profitable financial decisions. By understanding the influence the certainty effect has on customers, financial institutions are positioned to support better decisioning by the framing of choices and options to help customers succeed in their financial wellbeing journey.

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How does being rewarded affect our behaviours and goals?

Studies have shown that being rewarded has an impact on the way we build and repeat good practices. Rewards trigger the part of our brain linked to immediate gratification, and therefore when being done repeatedly it helps to positively reinforce actions and support a positive feedback cycle towards our goals. 

In a similar way, we are able to train our learned financial behaviours by tying rewards in with spending or saving, using it as a tool to evoke a sense of brand loyalty or even as a way to promote our levels of commitment and productivity. 

Financial institutions can use rewards to build a more meaningful relationship with consumers while also helping them make better financial decisions.

Maslow’s hierarchy of needs describes the elements we need as human beings to thrive and succeed. Typically depicted as hierarchical levels in a pyramid, we can understand financial wellbeing as a basic need; achieving it helps us achieve our established feelings of safety and security, which provides an important foundation for the pursuit of the heir-tiered needs. 

Beyond security alone, growth in confidence regarding financial behaviours and decision making and habits can also promote aspects of our self-esteem and can even provide avenues towards self-actualisation. 

Rewarding customers through gamified experiences 

The gamification of digital banking activities don’t just help with consumer engagement levels, it also helps reframe the way users view financial tasks that would normally be perceived as tedious or boring. Gamification can be applied to several aspects of digital banking to help create more compelling customer journeys, while also creating the opportunity for financial institutions to understand consumers and their needs better. Most importantly, it creates the opportunity for banks to reward users and be really creative in the way they do so. 

Rewarding your loyal customers is a long term investment

A personalised loyalty programme is an integral part of the relationship between banks and consumers today. 75% of consumers today have said that they would switch brands for a better loyalty program, and they are shown to influence the decision making process for consumers in general. Rewarding your consumers for their continued in-app activity and improvements in their financial wellbeing helps build trust, increases their lifetime value and helps develop a more meaningful relationship with them in the long run. 

Conclusion

Financial institutions should consider the impact rewards (and being rewarded) have on individuals when building personal financial management tools and implementing loyalty campaigns or financial wellbeing programmes. A reward strategy can be really effective when tied in with gamified experiences, so get creative and have fun rewarding your customers today!

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What is the Framing Effect?

The framing effect is a cognitive bias which describes how identical scenarios, when portrayed in different ways can result in vastly different choices and decisions being made. Human behaviours and responses to the same situation can be influenced significantly by the context in which the inherent ideas are framed – through questions asked, choice in use of language and presentation of information.

For example, a consumer is looking to buy some diet cola over in the supermarket. One was marketed as “80 percent sugar free” and the other says it contains “20 percent sugar.” The framing of nutritional information resulted in the former being chosen, because it appears to be the healthier option despite the fact that there is the same amount of sugar in both drinks. The higher value highlighted in the first diet cola was associated with it being the better option. This is but one example of how identical information can be perceived as less or more enticing depending on what attributes are accentuated, and there are plenty of those when it comes to our finances.

Why does it happen?

Our brains attempt to simplify decision making processes by using cognitive shortcuts to quickly establish outcomes in our daily lives. Decisions associated to the framing effect are based upon the way information is introduced to us, rather than the information itself. As such those decisions may be ill-informed – lesser options can be portrayed positively and can make them seem more favourable than they actually are.

When it comes to framing, Tversky et al (PDF) puts forward that “outcomes are commonly perceived as positive or negative in relation to a reference outcome that is judged neutral.” The framing effect is not just about how information is portrayed, it is also based on benchmarking and outward reference points. Alternative reference points can consequently also affect whether an outcome is determined to be advantageous or disadvantageous.

Additionally, people are generally loss averse and want to steer clear the negative emotions being evoked as a result of losses as much as possible. Framing an outcome around a loss has been shown to have more impactful and longer lasting effects than the same outcome presented as a gain.

How can banks address the framing effect and help their customers avoid this cognitive bias?

Quizzes, surveys and questionnaires

In order to help consumers understand their financial situations better, quizzes, surveys and questionnaires can be employed within digital banking apps. This method of self-discovery can help users realise not just what their financial goals are, but more importantly what their risk appetites are financially, thus helping them gain clarity of what financial decisions they can afford to make, regardless of how the framing effect can make them feel about potential purchases and investments.

Personal Financial Management (PFM) solutions

With the deployment of PFM solutions for banks, rich, interactive and educative perspectives on their finances can be given to consumers to enhance the framing of their financial data. PFM features can surface options in a manner that highlights positives (or downsides) of the financial decisions being made, thus allowing users to fully understand the impact of the past and future decisions they are making. Positive language and the appropriate tone of voice can also be used to frame information and help encourage users to save for the future.

Framing saving as a default choice in digital banking services

A key aspect of consumer behaviour indicates that consumers are more likely to stick with the easiest option that has been presented to them. By presenting users with a default choice of saving or setting up smart automated transfers into their savings accounts, financial institutions are framing savings as a key aspect, thus making it less likely that consumers will opt-out from the automatic default framework of saving.

Conclusion

As consumers, the framing effect has the potential to impact both positively or negatively. In order to avoid it, it is key to remember the most important thing to focus on is the message rather than the method of delivery. As financial institutions, it is possible to use the framing effect as a means to nudge customers into making better financial decisions. Effectively framing the right messaging can help users act in a way that will benefit their financial wellbeing in the long run.

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What is the Cashless Effect?

The Cashless Effect is a cognitive bias that characterises an inclination to be more willing to part with our money when there is no actual physical transaction taking place. Essentially, we are more likely to spend more money when we are not spending physical cash, as it more abstract and therefore less psychologically painful to part with.

The “pain of paying” is a typical negative emotion to go through when paying with physical currency. However, tapping or swiping a card and the absence of tangible cash takes the edge off quite easily. Digital payments create a form of disassociation from the negative arousal we tend to feel from parting with cash, and as it becomes a primary way which we make transactions, it becomes easier to overspend and make higher risk purchases that we typically would.

What can financial institutions do to help consumers be aware of the Cashless Effect?

Monthly notifications for auto-debit payments and subscriptions

In addition to cashless transactions at the point of sale or e-commerce store, it is also common for consumers to set up auto-debit for recurring payments and subscriptions today. Auto-debiting as a default is a shortcut that enables consumers to very easily forget that they are in fact paying for services or subscriptions that they perhaps no longer require. Regular notifications for new, upcoming or soon-to-renew auto-debit payments can be a useful way to help users track their spending, understand what they are paying for and gives them the opportunity to cancel if they no longer require the subscription.

Money management tools

As cashless payments become the norm, it is important that banks provide users with timely spend tracking features allowing them to understand their finances better and help with ensuring that they don’t overspend. From setting up budgets, financial forecasting capabilities that analyses spending habits, visuals that provide users with an understanding of their regular payments’ schedules, to automated settings that divest a predetermined amount for savings regularly, banks can provide users with actionable and personalised money management tools to continually review their finances, hence providing some control over the Cashless Effect, despite the instrument’s many undeniable benefits in terms of convenience.

Increasing friction for big expenses

Cashless payments remove effort and friction from the purchasing process, thus further eliminating the pain of paying. Payment methods like Apple Pay, Google Pay and Amazon 1-click have revolutionised the payment process, doing away with even the use of cards while checking out.

By increasing friction for users who want to pay with cashless methods especially for online purchases and big expenses, consumers can be compelled to take a moment to consider the amount they are paying for the items they want to buy, thus giving them the chance to reconsider their purchases.

Furthermore, if a buyer is overstretching their budget, this moment of pause gives them the opportunity to confirm that they indeed want to go through with the payment despite the negative arousal they might feel.

In addition to their inherent security benefits, friction points in digital banking are created through means such as the requirement of one-time passwords (OTP) sent to users via text or needing to launch digital banking apps to verify payments. It can also be a requirement to pay with an alternate method for larger payments. While these methods might seem cumbersome to users on a day-to-day basis (again, notwithstanding their security benefits), it brings back a form of acknowledgement to payments, thus inciting a more tangible feeling of parting with money which hopefully enables more informed decision making.

Conclusion

Cashless payments are a wonderful convenience for consumers and are here to stay. Having said that, financial institutions should help consumers stay on top of their finances and be informed about their financial situation regularly to curb the overspending side effect which this seamless payment method may generate. The Cashless Effect should be considered by financial institutions when building out financial wellbeing programs and personal financial management (PFM) tools as well, to ensure a more cohesive approach being taken by all stakeholders involved in order to offset the consequences it may pose to users in the long run.

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We retain information better when we receive it repeatedly over time and across different environments. A song can turn into an ear worm if you hear it every day on the way to work – background noise forms coherence and becomes a recognised tune with lyrics you somehow know, without ever intending to. 
 
This is an example of the Spacing Effect. When we learn ideas and develop concepts across several, distributed sessions over time, information recall happens a lot more efficiently. In educational psychology, the spacing effect has been studied extensively as an invaluable memory technique, and has been shown to facilitate effective learning practices.

Advertisers and marketers utilise the same model when featuring products and services with the aim of building consumer recognition and supporting sales. Such an approach offers a direct correlation to sales conversions as consumers are more likely to respond to a product placement or ad if they have seen it repeatedly, over an extended period of time.
 

How can financial institutions use the Spacing Effect to enable better personal financial management?

Make progress trackable

The first stage to helping customers make good financial decisions is giving them a holistic overview of their finances. Personal financial management (PFM) solutions do this by providing customers with money management tools such as savings goals tracking, transaction analysis and cash flow forecasting. Being able to see a temporal breakdown of expenditure allows customers to understand how they are spending their money, watch their savings progress and plan for future expenses. 

Charting progress with savings goals lets customers continuously track the growth of their investments, whilst providing frequent reinforcement through the Spacing Effect. This helps with the customers’ personal financial accountability, and ideally promotes longevity in their newly adopted financial habits. 

Spread out the messaging

Interactive financial wellbeing programmes running over a few weeks or months can be used as a tool to help consumers develop improved financial management techniques. Nudges and reminders to receive financial tips, invitations to challenges and smart spending strategies can be spaced out and repeated in the form of content delivered through financial wellbeing programs. The reiteration of such nudges helps individuals to gradually develop improved personal assessments and decision making processes, and effectively motivate continued and sustainable behavioural changes over time. In the same way the earworm grows from a minor observation into an ever-present melody, the financial insights offered through digital banking applications can develop into habits and behavioural changes – all with the intention of promoting financial wellbeing.

Gamification as a spacing strategy

After learning something new, effective recall is important in reinforcing these new memories by allowing our brain to revisit the newly-formed neurological pathways. Gamification can be used as a spacing strategy to remind consumers of the desirability of financial wellness improvements, which they are trying to develop. The feedback loops generated by interactive mini-games and quizzes keep customers engaged whilst positively reinforcing newly acquired financial habits in the long run. Points systems and fun rewards coupled with weekly or monthly financial goals can further support these positive feedback cycles and give the customer a continued sense of growth and improvement.

Conclusion

The Spacing Effect can be effectively implemented into digital banking platforms to support customers to develop better financial habits over an extended period of time. Marketing campaigns, PFM solutions and financial wellbeing programmes are all able to use the benefits of spaced messaging to reinforce behaviours and establish positive feedback systems to meet their desired outcomes. The timing of such messages and nudges, the choice of information being communicated and the need to revisit these ideas through gamification are central to effective implementation of such ideas and the utilisation of the Spacing Effect to its full potential.

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