Why Should Banks Care About Behavioral Economics?
The industry now has access to infinitely more data and insight about all manner of things. Business strategy is simply no longer strategic if all the available knowledge is not used to define —and meet— the needs of the target audience.
Our need to better understand customers will only increase as technology makes the role, access, and power of that consumer shift. Insights into the way users think, make decisions, and interact with products and services will define how businesses target their efforts for maximum effectiveness.
The financial sector is no exception.
A paradigm shift within the banking sector undeniably requires an overhaul of impressive dimensions, putting emphasis on the needs, wants, and actions of the newly empowered account holder.
If we want users to act on data, increase or simply just begin saving, investing, and even just thinking about their retirement, we need to go beyond data analytics, and focus our efforts on how —and why— people make decisions. This is where behavioral economics comes into play, drawing conclusions from the motivations behind people’s financial decisions; the psychology of human nature, that drives our actions, both good and bad.
The way we justify the purchases we make, how we save or plan for the future, and of course, how we can trick ourselves into overspending. Our irrational behavior is most commonplace when dealing with something as fundamental, and as emotionally-charged, like money management, with the vast majority of us committing the same mistakes over and over again.