Marc Michaels, Director of Behaviour and Planning, The GIG at DST
The financial services industry has been told in no uncertain terms to get to know their customers as people. The idea is to better understand whether the financial products on offer are actually appropriate for them.
For many institutions that are used to dealing with their end customers through IFAs and platforms, this is indeed a wakeup call and one that can’t be ignored.
But in a world where financial jargon is the ‘lingua franca’ of everyday chatter around the water cooler rule the day, do companies truly appreciate the lack of knowledge that their customers have when it comes to financial matters?
It may surprise you to know that the average reading age of the UK population is that of a nine year old. But more importantly, even if people have a higher reading age – they still prefer to read things that are at that level or two years below.
However, many organisations continue to look at the materials supporting financial products from an operational standpoint. To underscore the importance of bringing marketing principles into the operational arena, and better understanding the psychology of communication, a great deal can hang on the use of a single word.
For example, when the NHS Smoking Helpline was launched, one word was changed from the previous incumbent’s script and this reduced the hang up rate massively. Previously callers were told that they had reached a ‘Quit Counsellor’ – this word made people feel uncomfortable, sometimes enough to put the phone down. However they were much happier to speak to an ‘NHS Smoking Adviser’.
This matters because millions of disenfranchised customers will lack access or choose not to use financial advisers, possibly ‘doing it themselves’, doing it through other trusted parties like banks or supermarkets (but possibly with the wrong product set for them) or not at all through fear.
Meanwhile fund providers will be bringing in D2C communications and will need to make real efforts to ensure communications are truly received and understood by the recipient – not just sent – as this is even more pronounced with the vocabulary of finance.
But surely people are making mostly rational decisions when it comes to finance?
Actually, we are all subject to the same idiosyncrasies and behavioural biases when we are selecting financial products that operate in other sectors, such as loss aversion, mimicking/social proof, framing, anchoring, status quo bias, reciprocation etc., and the FCA know and recognise this too.
Nonetheless, whilst all recognise that, according to cognitive psychologists we are engaged in system 1 -autonomic thinking – 90 per cent of the time, unfortunately most financial copy seems to be written for the very alien rational Spock, rather than the very simple human Homer Simpson.
Excellent market practice ensures that communications are simple and to the point and combines skilful use of imagery and words to achieve this. It is also therefore essential that the voice of the customer is brought into the boardroom and fully understood, so organisations can deliver this clarity.
After so many scandals, consumers have a great deal of mistrust of financial institutions. Complex language and obscure phraseology merely reinforces that the institution is perhaps trying to confuse deliberately, hiding something in the small print, not being up-front. How can we expect customers to trust a firm, if that firm doesn’t speak in a language they can fully understand?
Mark Carney noted in 2013 that clarity is one of five key areas that financial institutions need to work hard in to regain consumer trust.
To understand what clarity really means in practice, we at The GIG at DST undertook research with nine-14 year olds to demonstrate to the investment industry that their communication is simply not understood by the average person in the UK. Specific aims of the research were to:
- Understand how much of the content is actually understood by children and parents
- Understand which terms and phrases are not universally understood or misunderstood – identifying the ‘worst offenders’
Possibly the scariest things in the findings is that whilst none of the children had heard of any of the products we brought up before, they valiantly attempted to guess what they could involve. Worryingly even when people haven’t a clue, quite often they will volunteer a definition and in most cases it is wrong. In the finance sector this can be disastrous.
Whether to invest is completely bound up with risk, and peoples’ understanding of it does relate to the amount of risk they are prepared to take. This relates to the amount they have already and the ‘endowment effect’ (Thaler) or ‘loss aversion’ as it has become known.
For example, for the children in our research, the potential gains were not worth the potential risk we outlined. We suggested a potential net gain of £2.50 on a £10 investment after a fee of 50p. When we explained that even if we lost them £1 (i.e. only returned £9 of their original investment), we would still charge them 50p. This would give them an overall potential loss of £1.50 and as a result most were not interested. The net potential gain needed to be closer to £3 if not £4, for the children to take the risk. As with most of us, loss weighs more heavily than gain by a factor of 2 to 2.5.
The summary conclusion of the research is that language used in the financial sector is fairly meaningless to people outside the sector, and often raise more questions. Worse still the fear and uncertainly of not knowing whether you are making a good decision can cause people to opt out, as often not making a decision is the safest thing to do.
And for the finance industry that is required to ensure its house is in order after a series of embarrassing and costly errors, this represents a large flashing neon red sign.
There are no simple fixes, but considering the points below should improve your approach and demonstrate that your organisation is taking serious steps to look at things from the customer’s point of view.
- Ensure that you recognise that the skills of marketing and excellent communications are required throughout your customer journey, not just at acquisition stage.
- Through combining data, research and human psychology, understand the customers you are targeting and the segments you have in terms of their life-stages, attitudes to risk and ability to deal with financial language.
- Listen to the feedback you get from customers. Watch out for where people struggle, where they abandon the journey. What are the pinch points where people feel insecure or confused?
- Make it more human and real and relate it to what people care about and how they think.
- Ensure you are testing the materials and content you create in terms of their ease of understanding. Test through research and direct/digital marketing best practice with a view to continuous improvement
- Keep in mind some simple ‘rules’:
- Write for a nine year old
- No more than eight words in a headline
- Five-eight words (max 10) in a sentence – avoid complicated sub clauses
- Three-seven sentences per paragraph and varied
- No large daunting blocks of text – employ chunking techniques
- Active not passive
- Plain English
- Read the copy aloud – if you stumble over something, your audience will too
- Try to accommodate ‘half-hearted attention’
- Consider that you have to project this clarity of communication in whatever touch-points the customer wants to connect – every connection counts
 The FCA expect firms to assess customer’s needs carefully and explain that ‘assessing your customer’s needs involves gathering and recording all relevant factual information together with their aims, financial aspirations and views on the degree of risk they are prepared to accept when it comes to investing to achieve these.’ See http://www.fca.org.uk/firms/firm-types/financial-adviser/customer-needs
Applying behavioural economics at the Financial Conduct Authority, Occasional Paper, 2013.
 A definition of the ‘Systems 1’ and ‘Systems 2’ brains can be found in Daniel Kahneman’s book, op. cit. ‘System 1 operates automatically and quickly, with little or no [conscious] effort and no sense of voluntary control. Systems 2 allocates attention to the effortful mental activities that demand it, including complex computations … [and] are often associated with the subjective experience of agency, choice and concentration’.
Rebuilding trust in global banking London, Ontario, 25 February 2013
 We conducted 8×20 minute filmed in-depth interviews with children aged 9-14, accompanied by a parent/guardian. Fieldwork took place on the 27th of March 2014 in South West London
Nudge: Improving Decisions about Health, Wealth, and Happiness, Richard H. Thaler and Cass R. Sunstein, Yale University Press, New Haven, 2008.
ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper
Today, Deutsche Bank has released the third installment in its “Guide to ISO 20022 migration” series, which offers a comprehensive update on the industry shift to the de facto global standard for financial messaging: ISO 20022. This paper comes at a critical time for the ISO 20022 migration, with a number of changes to existing timelines and strategies from SWIFT and the world’s major market infrastructures having been announced this year.
The paper explores the latest developments, including SWIFT’s year-long postponement of the migration in the correspondent banking space. The decision meets industry calls for a delay and also provides ample time to build the new central Transaction Management Platform (TMP) – a core feature of SWIFT’s new strategy that will allow the industry to move away from point-to-point messaging and towards central transaction processing.
It also details the wave of action that has been seen by market infrastructures around the world – with many, including the ECB, EBA CLEARING and the Bank of England, announcing revised migration approaches.
“Now more than ever, with shifting timelines and strained resources, it is vital that banks and corporates alike do not view the ISO 20022 migration as just another project that can be put on the back burner,” says Christian Westerhaus, Head of Cash Products, Cash Management, Deutsche Bank. “The delays in the correspondent banking space, and across several market infrastructures, should not be seen as an opportunity for banks to take their foot off the pedal. The journey to ISO 20022 is still moving ahead at speed – and internal projects need to reflect this.”
The Guide also highlights the implementation issues on the migration journey ahead – most notably surrounding interoperability between market infrastructures, usage guidelines and messaging formats. This is achieved through a series of deep dives, case studies, and points of attention drawn from Deutsche Bank’s internal analysis.
“As this year has proved, nothing is set in stone, “says Paula Roels, Head of Market Infrastructure & Industry Initiatives, Deutsche Bank. “The ISO 20022 migration involves a lot of moving parts and keeping abreast of the latest developments is critical for banks and corporates alike. As the deadlines near, and the ISO 20022 story develops, this series of guides will continue to highlight key points for consideration over the coming years.”
The Psychology Behind a Strong Security Culture in the Financial Sector
By Javvad Malik, Security Awareness Advocate at KnowBe4
Banks and financial industries are quite literally where the money is, positioning them as prominent targets for cybercriminals worldwide. Unfortunately, regardless of investments made in the latest technologies, the Achilles heel of these institutions is their employees. Often times, a human blunder is found to be a contributing factor of a security breach, if not the direct source. Indeed, in the 2020 Verizon Data Breach Investigations Report, miscellaneous errors were found vying closely with web application attacks for the top cause of breaches affecting the financial and insurance sector. A secretary may forward an email to the wrong recipient or a system administrator may misconfigure firewall settings. Perhaps, a user clicks on a malicious link. Whatever the case, the outcome is equally dire.
Having grown acutely aware of the role that people play in cybersecurity, business leaders are scrambling to establish a strong security culture within their own organisations. In fact, for many leaders across the globe, realising a strong security culture is of increasing importance, not solely for fear of a breach, but as fundamental to the overall success of their organisations – be it to create customer trust or enhance brand value. Yet, the term lacks a universal definition, and its interpretation varies depending on the individual. In one survey of 1,161 IT decision makers, 758 unique definitions were offered, falling into five distinct categories. While all important, these categories taken apart only feature one aspect of the wider notion of security culture.
With an incomplete understanding of the term, many organisations find themselves inadvertently overconfident in their actual capabilities to fend off cyberthreats. This speaks to the importance of building a single, clear and common definition from which organisations can learn from one another, benchmark their standing and construct a comprehensive security programme.
Defining Security Culture: The Seven Dimensions
In an effort to measure security culture through an objective, scientific method, the term can be broken down into seven key dimensions:
- Attitudes: Formed over time and through experiences, attitudes are learned opinions reflecting the preferences an individual has in favour or against security protocols and issues.
- Behaviours: The physical actions and decisions that employees make which impact the security of an organisation.
- Cognition: The understanding, knowledge and awareness of security threats and issues.
- Communication: Channels adopted to share relevant security-related information in a timely manner, while encouraging and supporting employees as they tackle security issues.
- Compliance: Written security policies and the extent that employees adhere to them.
- Norms: Unwritten rules of conduct in an organisation.
- Responsibilities: The extent to which employees recognise their role in sustaining or endangering their company’s security.
All of these dimensions are inextricably interlinked; should one falter so too would the others.
The Bearing of Banks and Financial Institutions
Collecting data from over 120,000 employees in 1,107 organisations across 24 countries, KnowBe4’s ‘Security Culture Report 2020’ found that the banking and financial sectors were among the best performers on the security culture front, with a score of 76 out of a 100. This comes as no surprise seeing as they manage highly confidential data and have thus adopted a long tradition of risk management as well as extensive regulatory oversight.
Indeed, the security culture posture is reflected in the sector’s well-oiled communication channels. As cyberthreats constantly and rapidly evolve, it is crucial that effective communication processes are implemented. This allows employees to receive accurate and relevant information with ease; having an impact on the organisation’s ability to prevent as well as respond to a security breach. In IBM’s 2020 Cost of a Data Breach study, the average reported response time to detect a data breach is 207 days with an additional 73 days to resolve the situation. This is in comparison to the financial industry’s 177 and 56 days.
Moreover, with better communication follows better attitude – both banking and financial services scored 80 and 79 in this department, respectively. Good communication is integral to facilitating collaboration between departments and offering a reminder that security is not achieved solely within the IT department; rather, it is a team effort. It is also a means of boosting morale and inspiring greater employee engagement. As earlier mentioned, attitudes are evaluations, or learned opinions. Therefore, by keeping employees informed as well as motivated, they are more likely to view security best practices favourably, adopting them voluntarily.
Predictably, the industry ticks the box on compliance as well. The hefty fines issued by the Information Commissioner’s Office (ICO) in the past year alone, including Capital One’s $80 million penalty, probably play a part in keeping financial institutions on their toes.
Nevertheless, there continues to be room for improvement. As it stands, the overall score of 76 is within the ‘moderate’ classification, falling a long way short of the desired 90-100 range. So, what needs fixing?
Towards Achieving Excellence
There is often the misconception that banks and financial institutions are well-versed in security-related information due to their extensive exposure to the cyber domain. However, as the cognition score demonstrates, this is not the case – dawdling in the low 70s. This illustrates an urgent need for improved security awareness programmes within the sector. More importantly, employees should be trained to understand how this knowledge is applied. This can be achieved through practical exercises such as simulated phishing, for example. In addition, training should be tailored to the learning styles as well as the needs of each individual. In other words, a bank clerk would need a completely different curriculum to IT staff working on the backend of servers.
By building on cognition, financial institutions can instigate a sense of responsibility among employees as they begin to recognise the impact that their behaviour might have on the company. In cybersecurity, success is achieved when breaches are avoided. In a way, this negative result removes the incentive that typically keeps employees engaged with an outcome. Training methods need to take this into consideration.
Then there are norms and behaviours, found to have strong correlations with one another. Norms are the compass from which individuals refer to when making decisions and negotiating everyday activities. The key is recognising that norms have two facets, one social and the other personal. The former is informed by social interactions, while the latter is grounded in the individual’s values. For instance, an accountant may connect to the VPN when working outside of the office to avoid disciplinary measures, as opposed to believing it is the right thing to do. Organisations should aim to internalise norms to generate consistent adherence to best practices irrespective of any immediate external pressures. When these norms improve, behavioural changes will reform in tandem.
Building a robust security culture is no easy task. However, the unrelenting efforts of cybercriminals to infiltrate our systems obliges us to press on. While financial institutions are leading the way for other industries, much still needs to be done. Fortunately, every step counts -every improvement made in one dimension has a domino effect in others.
Has lockdown marked the end of cash as we know it?
By James Booth, VP of Payment Partnerships EMEA, PPRO
Since the start of the pandemic, businesses around the world have drastically changed their operations to protect employees and customers. One significant shift has been the discouragement of the use of cash in favour of digital and contactless payment methods. On the surface, moving away from cash seems like the safe, obvious thing to do to curb the spread of the virus. But, the idea of being propelled towards an innovative, digital-first, cashless society is also compelling.
Has cashless gone viral?
Recent months have forced the world online, leading to a surge in e-commerce with UK online sales seeing a rise of 168% in May and steady growth ever since. In fact, PPRO’s transaction engine, has seen online purchases across the globe increase dramatically in 2020: purchases of women’s clothing are up 311%, food and beverage by 285%, and healthcare and cosmetics by 160%.
Alongside a shift to online shopping, a recent report revealed 7.4 million in the UK are now living an almost cashless life – claiming changing payment habits has left Britons better prepared for life in lockdown. In fact, according to recent research from PPRO, 45% of UK consumers think cash will be a thing of the past in just five years. And this UK figure reflects a global trend. For example, 46% of Americans have turned to cashless payments in the wake of COVID-19. And in Italy, the volume of cashless transactions has skyrocketed by more than 80%.
More choice than ever before
Whilst the pandemic and restrictions surrounding cash have certainly accelerated the UK towards a cashless society, the proliferation of local payment methods (LPMs) in the UK, such as PayPal, Klarna and digital wallets, have also been a key driver. Today, 31% of UK consumers report they are confident using mobile wallets, such as Apple Pay. Those in Generation Z are particularly keen, with 68% expressing confidence using them.
As LPM usage continues to accelerate, the use of credit and debit cards are likely to decline in the coming years. Whilst older generations show an affinity with plastic, younger consumers feel less secure around its usage. 96% of Baby Boomers and Generation X confirmed they feel confident using credit/debit cards, compared to just 75% of Generation Z.
Does social distancing mean financial exclusion?
As we hurtle into a digital age, leaving cash in the rearview, there are ramifications of going completely cashless to consider. We must take into consideration how removing cash could disenfranchise over a quarter of our society; 26% of the global population doesn’t have a traditional bank account. Across Latin America, 38% of shoppers are unbanked, and nearly 1 in 5 online transactions are completed with cash. While in Africa and the Middle East, only 50% of consumers are banked in the traditional sense, and 12% have access to a credit card. Even here in the UK, approximately 1.3 million UK adults are classed as unbanked, exposing the large number of consumers affected by any ban on cash.
Even when shopping online – many consumers rely on cash-based payments. At the checkout page, consumers are provided with a barcode for their order. They take this barcode (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped.
There are also older generations to consider. Following the closure of one in eight banks and cashpoints during Coronavirus, the government faced calls to act swiftly to protect access to cash, as pensioners struggled to access their savings. Despite the direction society is headed, there are a significant number of older people that still rely on cash – they have grown up using it. With an estimated two million people in the UK relying on cash for day to day spending, it is important that it does not disappear in its entirety.
Supporting the transition away from cash
Cashless protocols not only restrict access to goods and services for consumers but also limit revenue opportunity for merchants. While 2020 has provided the global economy with one great reason to reduce the acceptance of cash, the payments industry has billions of reasons to offer multiple options that cater to the needs of every kind of shopper around the world.
Whilst it seems younger generations are driving LPM adoption, it is important that older generations aren’t forgotten. If online shops fail to offer a variety of preferred payment methods, consumers will not hesitate to shop elsewhere. With 44% of consumers reporting they would stop a purchase online if their favourite payment method wasn’t available – this is something merchants need to address to attract and retain loyal customers.
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