As argued in my last post, the cost-of-living crisis is causing financial stress that banks now have the opportunity and responsibility to address. When treated correctly, this stress can be transformed into motivation to care for one’s finances in a more proactive manner.
The banking industry has a natural role to play in boosting customers’ ability to take action towards improved financial wellbeing and the timing is right to invest in this area.
Why the timing is right today
- Increasing customer demand. Customers want banks to take a bigger role in their life. Banking used to be a highly personal industry, however, during the shift to digital banking it has experienced a significant loss in customer loyalty. The gap between banks and their customers has increased and this is an opportunity to win back trust.
- First mover advantage. Looking at incumbent banks, there are yet a few that have successfully claimed the space as a lifestyle banking provider. Studies show that many banks are still struggling to convert and engage customers and focusing on improving customers’ financial wellbeing is the way forward.
- Opportunity to improve ESG reporting. Financial wellbeing is a part of social sustainability. By actively addressing it, banks have the possibility to improve their own ESG reporting. To create an impact and change habits, consumers need to start where they are struggling today (i.e. mitigate financial stress). And as environmental wellbeing increases in importance, the same mechanisms can then be leveraged to widen the impact on environmental sustainability. A clear win-win-win situation for customers, banks and our planet.
- Profitable to increase AUM. In today’s macroeconomic environment, it is becoming more profitable for banks to increase their Assets Under Management (AUM). Given the current cost-of-living crisis, the risk of default increases and there is a new opportunity to strengthen the balance sheet by helping customers save money and motivating them to more consciously care for their finances. It is also evident that the behaviour to save is creating a longer time horizon that increases customer loyalty.
To conclude, there are both internal and external factors that demand boosting customers’ financial wellbeing today. To stay on top of customer demands, evolving regulations and the current financial context this area should be prioritised. It is hard to argue against an opportunity that serves the emotional, environmental and financial success of millions of people.
Are you interested in hearing what actions banks can take to boost their customers’ ability to improve their financial wellbeing? Stay tuned for part 3 on the topic of boosting customers’ ability.