By Paul Jackson, Chief Product and Technology Officer at Level Financial Technology
The idea of behavioural economics will be familiar to anyone who saw The Social Dilemma on Netflix in the autumn of last year. For the uninitiated, the film explores the extent to which social media firms have been applying behavioural science to the design of their products – and in particular their apps – to increase user engagement.
The story starts with a fellow called BJ Fogg, a professor at Stanford University in California, who established what became known as the Persuasive Technology Lab around 30 years ago. He published his equivalent of Einstein’s most famous formula which, in his case, is B = MAP or Behaviour = Motivation + Ability + Prompt (sometimes called ‘trigger’).
Fogg’s conclusion is that the coordination of these three factors at specific moments is what constitutes behaviour which over time becomes habitual.
Fogg may largely be unknown outside of Stanford academic circles but that can’t be said of his students who include Justin Rosenstein, the Facebook engineer who invented the ‘Like’ button and Kevin Systrom, one of the founders of Instagram.
Thanks to the advertising-based revenue model that all the social media companies adopted, these former students began drawing on Fogg’s formula to help them compete in what became a global arms race for attention.
However, this has come at a significant cost to the reputation of Facebook and its competitors.
But where social media has got it wrong, the banking sector has an opportunity to utilise behavioural economics to help reduce stress brought about by financial health and wellbeing.
Learning from past mistakes
Recent reports of Monzo’s CEO stepping down due to poor mental health, and Lloyds Banking Group CEO Antonio Horta–Osorio opening up about his own experience of mental health issues, the stigma around such topics is slowly being removed. But with the Money & Pensions Service reporting 31,000 visits to its online debt advice locator in January 2021, the reality of a difficult financial year seems to have well and truly hit.
What is less known is the role large employers like those in the banking industry can and must play in reducing the impact of financial woes – while empowering staff to meet their financial goals.
What we can learn from Facebook and the like is that all software products (not just social media) should be aligned around the best interests of their users and that their commercial model should never be at odds with this.
We also learn that, in place of the ‘Dark Patterns’ that social media companies applied to their product design, we should employ ‘light’ patterns.
Social media companies were covert in their application of these tactics, never disclosing them to users and making it hard for them to turn them off. Businesses must instead be completely transparent about how they do this.
Social media platforms also employed what have become known as ‘sludges’: tactics that actually prevent users from achieving certain goals. The best example of this would be unsubscribing from a service which is often impossible online and requires an offline process (such as a phone call) to complete.
One of the most interesting moments in the Social Dilemma occurs during the final credits when most of the contributors, who all worked at social media companies, are asked whether they allow their children to use mobile phones. They all reply that they rarely do so and never let them use social media apps at all.
Changing entrenched behaviours?
So how can behavioural science be adopted by the banking industry to the benefit of the workforce?
Anyone who works in the business of wellbeing would acknowledge that they are in the business of changing behaviours – or trying to effect positive behavioural change.
But there is a line between paternalism and manipulation that employers cannot cross and there are a number of frameworks to which we can refer that establish the rules of engagement.
These include vectors such as transparency, the extent of possible consequences and the degree of control a user has in the interaction.
Changing entrenched behaviours, even to achieve positive outcomes, is very hard and one of the most important things we learn from BJ Fogg is the role a person’s motivation plays in their behaviour.
Fogg argues that the best place to start is to identify moments when one’s motivation to change is high, then offer them ‘hot triggers’ that provide opportunity to establish new behaviour.
In terms of personal finance there’s a consistent high point of motivation which tends to occur monthly (pay day), so the obvious ‘hot trigger’ is to make it as easy as possible for someone to contribute to their savings when they get paid, and their motivation is highest.
This ‘salary-link’ underscores the powerful role that employers can play in financial wellbeing solution. By enabling deductions directly from salary, employers are uniquely positioned to offer more cost-effective solutions to financial health than anyone else.
Other insights from behavioural science include the importance of visualising goals. Research indicates that the closer one gets to achieving a reward, the more one accelerates progress towards the goal. Products which allow users to upload a photo of the item or event they are saving for helps drive inner motivation and reinforce commitment.
Lastly, there is the option to occasionally use SMS as a delivery channel for bespoke ‘nudges’. A number of studies on the impact of SMS have concluded that it’s both an inexpensive and effective channel to use given that it’s mobile and typically has open and read rates of up to 90%, far higher than email.
These SMS nudges might help users avoid financial shocks such as annual or quarterly bills they may have overlooked or suggest increasing savings contribution in the event of a pay rise or the reduction of a monthly bill.
In 2021, major employers such as the banking industry are recognising the leading role they can play in the financial health of their workforce. Behavioural science shows how they can help employees make positive changes in their financial habits. In turn, this will lead to a happier, healthier and more productive workforce better equipped to drive the economic recovery.
Global Banking & Finance Review
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