Trends in Behavioural Science and Retail Banking & Finance

I remember the title of our proposal so clearly. 

This was 2014, the same year Malaysia Airlines Flight 370 disappeared, and when Putin illegally annexed Crimea the first time round. That’s nearly a decade ago. This time feels both long past, courtesy of the endlessness of the pandemic, but also like yesterday. Parts of Flight 370 are still being discovered in December 2022 and Putin … well … he’s still an asshole.

My – OUR – very first client who was sold on the thesis that customers behave irrationally, was a retail bank in South Africa. Like a first love – a high school sweetheart perhaps – there is so much that is memorable about that first client. 

Our key stakeholder was the head of pricing for the retail or consumer bank. From an accounting background, she had previously filled many technical roles within the bank, having established herself as no-nonsense, I-get-stuff-done. With further hindsight, she might have been a little nuts. I mean, for a veteran banker to give the greenlight to a fairly high-risk project is exceptional. Yes, the team had spades of strategy management consulting experience, but none in using behavioural economics as a problem-solving approach to commercial problems. The question we were looking to help solve is why the banks’ customers believed that the bank was expensive, when all available evidence suggested they weren’t. It might also have been because our stakeholder was at the twilight of her career and that she had a slightly jaundiced view of the direction that the bank was taking, that helped convince her that we were worth a go.

The fact that this was a paying client corrupts slightly perhaps the analogy of a sweetheart; but nonetheless, following a whirlwind 6-month romance that evolved rapidly from conceptual understanding of the issues to a range of wildly successful POCs (proof of concepts) evidencing the commercial benefit of architecting customer choice, we were now approaching the end of the year – budget time.

SO, pop quiz to the management consultants reading this article: you’ve delivered completely self-funded work with evidenced ROI that more than vindicates the approach, how do you scale the framework for value-creation to the entire retail banking operation?

Love, I’m told, can make you blind. 

In the December of 2014 I proposed that the bank simply repeat the approach with four times more consultants, and that they continue to do so for the entire coming year, 2015. This was, after all, an approach than exceeded hurdle rates in terms of return and in amplifying the approach, repeatedly, we could pass on efficiencies in terms of more projects delivered. Boldly encouraged by the obviousness of the solution, I stupidly entitled the proposal, “Go big, or go home”.

If only I’d appreciated the irony of the title, at the time. 

“Go big, or go home” was meant as an appeal to bank management to make the big next step in expanding behavioural insights to the far reaches of the business. For a bank with a track record of perennial underinvestment, this was a direct challenge to make the right decision, or simply close down the initiative. It was a throwing down of the proverbial gauntlet. The work would not be done overnight, nor in a year, but it would create a path towards scaling out the method. A match made in heaven, this would be good for the bank, and for us.

Within 6 months of the new year instead, of course, the bank cruelly hired its own in-house behavioural economist and wound down our services. Go home, indeed!

Other than its cathartic and entertainment value, what is my point?

By now, 2023, the value of behavioural science, in the flavour conceived of by Kahneman and Tversky, to retail banking and financial services is a well-established fact. It’s a done deal, there’s little achieved in even debating the point. 

The outstanding question however, which in my mind remains unsolved, is how one scales up the promise that the science has to offer within larger, more established businesses, like banks and financial institutions. With millions of customers and with employees measured in multiples of thousand, a single expert waving the flag for behavioural science, doesn’t solve the problem. Neither, for that matter, does a team of internal behavioural scientists. A few minds applied to deep problems don’t go far, even if they are clever. Added to this the fact that small teams always struggle with continuity, and you have a formula for boom and bust, particularly if patronage is uncertain.

What else do we know doesn’t work? Management training workshops? Nope. They just don’t stick. Change the reporting lines of the BS team? Meh. Helped a bit and then key person X left. Upskill the team? Promising, but slow and then, key person Y left.    

Rather than simply leaving the point hanging there, in a (re)statement of the problem, I’ll acknowledge that retrofitting behavioural science to any mature, complex business isn’t easy. 

From my experience however, there are two strategies leading the charge for amplifying behavioural science sustainably within business. I’ll be deliberately cryptic on the strategies … I’ve a business, after all … firstly, teams are being swapped out for capabilities, and secondly, since capabilities function within systems, businesses are being taken along for the ride.

Have you successfully multiplied the performance of your business through the application of the behavioural sciences? I’m curious. Reach out, and tell me.