It’s not a great time for British consumer confidence, which slid to a five-month low in September. After the stresses and strains of the pandemic and with tax hikes, price rises, tax hikes and shortages of some goods it’s hardly surprising. In addition, a report from February 2020 found that 10.7 million people in the UK had low financial resilience, with too much debt or not enough resources to shield them from financial shocks.

What can banks do to help? People used to think of banks for the most part as just a utility, a service they used to make transactions and manage their money when they had to. Now the enormous capabilities of new technologies, mobile, and open banking means banks can build a completely different and far better relationship with their customers. And this is especially true of those who don’t have a high income or a lot of resources at their disposal and may find the whole idea of dealing with finances anxiety-inducing.

By making things easy, using behavioural nudges and boosts, and creating a few simple tools, banks can relieve some of the mental effort of money management, educate their customers and encourage better financial decisions. Best of all they can help people whose natural inclination is to avoid the stress of thinking about money, helping them gain confidence in managing their finances, perhaps for the first time ever.

Keep it simple…

Banking apps need to be secure, so users will need to go through a robust registration and identification process. But it needs to be as simple and frictionless as possible. Otherwise, some people will install the app but never get as far as using it. Facial recognition technology on an authenticated phone lessens the need for passwords, passcodes and other details that are not always that ‘memorable’. Design, UX, navigation and language also need to be simple, intuitive and inclusive; the app project team should always remember that many users won’t be as tech-savvy as they are. Including features that have genuine value, like being able to pay in a cheque without having to visit the bank, will encourage use.

…except when it will help discourage negative behaviour

Of course, there are times when friction can be helpful. Making people have to ‘work’ to opt out of positive choices may make them think twice. Adding ‘are you sure?’ notifications to customers dipping into savings before they’ve reached a goal or spending that takes them close to their credit limit might also cause them to reconsider.

Make spending transparent

A takeaway, a taxi ride or a couple of rounds in the pub may not cost much. But show someone they’ve spent £140 on Deliveroo in a month and suddenly it becomes clear where the money’s going. Giving customers the opportunity to track their spending, broken down into categories and visible over different time periods, makes it easier for people to see how they could save. Receiving notifications for every transaction will also help customers keep an eye on their spending. Fintechs and challenger banks are using these tactics with great success.

Nudge towards saving

Saving must seem easy. Breaking it down into a series of achievable challenges will build confidence. Offering the facility to ‘round up’ ‘change’ from purchases or automatically moving any money left at the end of the week or month into a savings pot, is a great way of helping reluctant savers build good habits. Gamification appeals to some users, for instance gaining virtual or real ‘rewards’ for reaching savings goals.

Going one step further and making savings the default option takes away the effort and emotion of making an active choice. According to the government’s Behavioural Insights Team, people are 23% more likely to choose the default option, just because it’s easier on our brains and we presume it’s the best course of action. Banks can also offer reminders, for instance notifications asking if a customer wants to move money into savings, for those customers who aren’t comfortable with auto-saving even small amounts.

Norm nudges are another useful tactic. People like measuring themselves against other people and don’t like to be found lacking. So, if ‘90% of people on your salary choose this option’ you’re more likely to choose it, or even go one better.

Pots, goals and jam jar accounts

Another tactic pioneered by fintechs is enabling people to group funds within one bank account into different, named ‘pots’ or ‘jam-jars’ in order to encourage people to save. Accumulating money for a new kitchen, a holiday or even a financial ‘safety net’ is far more engaging than general savings. A photo representing the goal provides encouragement and means users stop and think before taking money out to spend on something else. Photos can even be gradually ‘built’ representing progress. Users of pay management app Wagestream can upload an image which becomes clearer or fainter depending on how much they’re saving.

Making smart use of data

To create these kinds of experiences, banks need to make smarter use of their most valuable resource: data. Building capabilities in AI and machine learning will unlock data, enabling a deeper understanding of each individual customer and a greatly enhanced level of service. This will allow banks to not just respond to needs but to anticipate them and be there to offer the right services for life events both big and small.

The likes of Monzo, Starling Bank and Plum already offer all the money management tools and behavioural nudges they can think of to their willing audience of younger consumers and the digitally savvy. Now it’s up high street banks to learn from them discovering the most effective strategies to help their own customers. By providing tools to help them manage their money, knowledge that brings confidence and nudges which encourage savings, banks can be a source for good.

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