Trends in Behavioural Science and Retail Banking & Finance

With global markets in recession, the safe money is on customer (re)payment behaviour dominating the strategic agenda of business execs in 2023. This cyclical trend is especially true of banks and financial services businesses, the economics of which depend on a lifetime of customer value, rather than on profit-making on once-off purchases.

Very well kitted-out with payments and credit technocrats and with considerable technology and process investments which have shown their mettle over time – in other words, mature, sophisticated capabilities – the banking and financial services industries will typically believe that they are in pretty good shape to ride the storm.

 I’m curious however as to what contribution the relatively new kid on the block, behavioural science, will make to the challenge.

Many seasoned banking and financial services experts might argue that customer behaviour has always been at the heart of their business and take exception to the argument that behavioural science is entirely new. In their view, they’ve always practiced behavioural science. They might not have called it as such, but the principles and discipline are the same.  Further to which they’ve got extensive, proprietary capabilities representing their commitment to customer behaviour. 

In the broader sense of the term, I think, their point holds some truth: behavioural science has been practiced within the financial services industry for a lot longer than what might be convenient to recognise - especially when there is clear evidence of deliberate testing and statistical analysis of outcomes.

If this is true, what sets recent innovations in behavioural science within industry apart from what came before it, and what does this mean for our expectations of the discipline?

For me, what distinguishes the last two decades of growth in behavioural science apart is the spotlights it has brought to bear on (a) customer irrationality, and (b) the long list of reliable behavioural insights or hypotheses which can be readily deployed in a range of different contexts for influencing customer behaviour. The contribution of these two points alone to more traditional conceptions of behavioural science, cannot be overemphasised. 

One metaphor I have used to describe this difference to clients is this: Imagine you are right-handed. You write with a pen in your right hand. You play tennis with your right hand. You kick a ball with your right foot. When you trip, you automatically put out your right arm out to break your fall. Instinctively and naturally, you are over reliant on the dexterity of your right hand. One day however, your right hand is incapacitated, perhaps as a function of the fall, and you’re forced now to use your left hand for all those same tasks which came so easily to your right hand. What a difficult, awkward experience!

For banks and financial services businesses, that customers are considered rational is the equivalent of being right-handed. It is by far the dominant view entrenched in how they think about customers and solutions to customer behaviours. Need to reduce customer dormancy? No problem; let’s educate them on the superiority of the proposition and let’s run a utilisation campaign. Need to improve deteriorating loan repayment behaviour? Let’s warn customers about how their bureau scores stand to be affected.

But what if I asked you to solve for the same uptake of product problem without your right hand, without information as a lever, or without a prize? What if you can’t dip into the same bag of tricks as you’ve always used? What would the left hand do? Even framing the question is tough.

Considering all the hard work involved in having to retrain one’s brain to fight what comes so naturally, why bother? Your company is well-invested in payments and credit capabilities which have been tackling customer (re)payment for as long as the business has been in business, why do anything differently?

The answer, for me, lies in survival and competitive advantage. My hypothesis is that businesses with the ambidexterity to deploy both rational and irrational strategies for influencing customer behaviour will deliver superior performance in (re)payments. A provocative thought, almost impossible to evidence, of course; but worth asking, nonetheless.

What do you think? Is your business ambidextrous?