Go big on social impact: Financial health and education

Temenos – Company

“Imagine a world in which banks are seen as key actors in solving some of the biggest challenges facing society rather than as a source of them.”

BCG, Banks Can Bet Big on Social Impact,
December 14, 2022  

ESG (Environmental, Social, and Governance) issues have taken center stage on every organization’s agenda over the years. The environment, or the E in ESG, has been the focus. But recent worldwide events—the pandemic, its repercussions, the cost-of-living crisis, and economic developments— have propelled another crucial ESG component—social.

When people struggle to make ends meet, environmental issues become a lower priority. Under these circumstances, people of all ages have amassed debt. Many continue to do so and cannot afford to pay it down. Further, they lack knowledge or tools to effectively manage their finances.

Here, banks have a responsibility and an opportunity:

  • Recent Edelman Trust Barometer findings reveal 70% of respondents believe banks are biased against regular people, highlighting public distrust.
  • The same number increases to 74% when you include financial services employees.
  • Over 42% find it challenging to manage their money due to a lack of education or confusion.
  • Only 43% trust their bank to look after their long-term financial well-being.
  • Only 28% seek help from banks when a major life event causes them financial instability.

The data is grim, yet there’s opportunity.

Let’s talk about financial (il)literacy

We should have sufficient financial knowledge given that we live in the information age, right? No. It’s not always the case, even with a wealth of knowledge at our fingertips, and the S&P Global FinLit survey depicts this.

Financial literacy is low across the globe. Even in the most developed markets, as many as one in three adults don’t understand basic financial concepts. This is 30–35% of the population in these markets. The percentage increases drastically when you move to less developed parts of the world.

Financial illiteracy also discriminates when it comes to age, gender, and income. It’s particularly low among young adults, women, elderly, lower income, and education brackets. It’s no surprise that many people are struggling with debt and lack the basic tools to improve their financial position.

Physical, mental, and financial health

Today, there are more than 500 million users of physical fitness or wellness apps. The number increased during the pandemic, and the rate of growth for these apps has remained steady.

We all take our physical and mental health very seriously. The question is, why aren’t we doing the same with our financial health? And why aren’t banks more involved in this process?

In terms of information availability, banks can understand how well we can manage our money with visibility into our transactional behavior and spending patterns. Research1 suggests there is a positive correlation between financial and physical & mental health. Financial issues can cause stress which can cause mental or physical problems and vice versa.

Although there are plenty of apps out there dealing with our physical and mental health, there aren’t many that focus on building good financial habits. There have been attempts at personal financial management (PFM) tools, either from financial institutions or FinTech, but with poor results.

The failures of PFM

The failure lies in the way PFM has been approached. Most tools act as mere collections of information–which is only the first step in the process.

There are good existing solutions (e.g., Snoop in the UK) where open banking and AI provide people with insights and help manage their money. But this is a point solution to a broader problem.

The most successful physical or mental health apps treat the problem holistically. It’s not just about losing weight and meditation; it’s about structurally changing several parts of your lifestyle and learning how to form healthy habits. They combine exercise, nutrition, psychology, and meditation, to name a few.

They also recognize that we all start from different places and have different paths to tread. The apps take time to create your profile and understand where you are starting from, while tailoring the journey according to your needs. They offer hyper-personalized experiences.

This is not done solely via technology, although the evolution in the past years has enabled their success. They also use interactions with real people, often referred to as coaches, forums of people in similar circumstances, and the ability to talk to someone to get additional support. The journeys combine technology and physical interaction, so people receive the right level of support in trying to meet their physical and mental health goals.

Why aren’t we doing the same with financial health?

Today, data, AI, and open banking have made this possible. We have the tools to craft such customer experiences. And given how physical, mental, and financial health are linked, it makes sense to do so.

Why bother?

Skeptics may say, “Why bother?” But, given the levels of trust in the banking sector, customer attrition at over 20% and FinTech chipping away from parts of the business, we would argue that banks should.

To succeed, as with every business, you need to create a unique selling proposition (USP). What differentiates you from everyone else? Why would someone come to you instead of some other bank? In the current environment, banking is viewed as a commodity, so this is becoming more pressing than ever.

It’s time to build trust. If your customers feel supported, they will trust you. They will see you as a partner in their journey to meet their goals, and you will be there in challenging times, as well as good ones. This deep emotional connection builds more loyalty than any number of rewards they could receive.

When people feel empowered, enabled, and supported, they will thrive. These are the customers we all want.

1 and Large Number of Americans Reported Financial Anxiety and Stress Even Before the Pandemic |  

Temenos – Company