How Behavioral Economics Can Transform Financial Services

Described by many as the study of ‘consistent irrationality’, Behavioral Economics exposes human decision-making as an activity that is rarely as logical as assumed. Sitting at the intersection of psychology and economics, it characterizes humans as being greatly emotionally led, favoring ease over long-term gain and possessing a strong predisposition to specific patterns of cognitive behavior. Here, we take a look at some of the ways that Behavioral Economics theory can help Financial Service providers to transform their customer experience offering and meet the demand of a rapidly evolving market.

Better Customer Insights

Behavioral Economics places great emphasis on the need for it’s practitioners to look at the service they provide from the perspective of their customer. Encouraging the collection of data and insights from service users, it recognizes the clear benefit to be gained from applying these findings to the design and execution of its offerings. While it may be seemingly common-sense for those in the service industry to think as if they were a customer, many real customer priorities are different to what is assumed.

Increased Customer Loyalty

On the same note, Behavioral Economics highlights that may be a primary want for the business, is not necessarily a primary want for the customer. For example, in the age of digitalization, a huge amount of focus is placed on the improvement a business’ speed and efficiency. Indeed, time is money, but as human beings, customers also desire a service that recognizes their needs as an individual. In Behavioral Economics, it’s feelings that drive customer loyalty. In a time of increased competition, Financial Service providers must really tap into this as an opportunity set themselves out from the crowd and ensure that they don’t overlook the wants and needs of today’s consumer.

Improved Services

In Behavioral Economics, ease trumps everything. In recognizing this, Financial Service providers can design offerings that prioritize the aspects of a customer experience that truly make a difference. For example, rather than dedicating time to convincing potential consumers to part with their money, they should instead make it easy for them to do so. Similarly, in introducing new approaches to the provision of customer experience to employees, Behavioral Economics demonstrates how creating a 'proof of concept' can make it easy to visualize the rewards of the transformation, and consequently increase the rate at which is it adopted.

Click below to learn more about the key principles of Behavioral Economics and explore how Michael J. Meyer, VP Customer Experience and Operational Excellence at Greater New York Mutual Insurance successfully introduced them to the company’s underwriting arm.