Nine out of ten people will do the right thing (and click this story)

How do you convince fiscal miscreants to pay their taxes on time? Simply tell them everyone else is doing it, it turns out. Behavioural economics does the rest for you.

Analysis using behavioural economics will play an increasing role in financial services in the future. ANZ senior manager, global regulatory change Dr Martin Joy and manager, enterprise regulatory change Kim McGrath spoke with BlueNotes on video about the idea.

" It’s becoming a really interesting and powerful way to look at financial services regulatory problems."
Dr Martin Joy, Senior manager, global regulatory change, ANZ

Around the world, regulators and financial service organisations are embracing practices which tap into basic human tendencies and persistent behaviour patterns in order to improve consumer protections or increase revenue streams.

McGrath said behavioural economics played an important role in 2011 when the UK tax office looked into ways to increase the on-time rate of tax payments.

How behavioral economics works

“What [the UK tax service] did was leverage what we call ‘social norms’,” she said. “The idea is we are influenced by how others behave.”

It took just one sentence in a form letter from Her Majesty's Revenue and Customs service to increase positive responses from delinquents by 1.5 per cent. The line was simple: "Nine out of 10 people in the UK pay their tax on time"

Another sentence - "You are one of the few who have not paid us yet" lifted success by 3.9 per cent, while making reference to the hometown of the lax payer saw a 6.8 per cent rise.

“I think this is why behavioural economics is really enticing to regulators and government because it really feeds into that deregulation context,” McGrath said. “You can make a small change and have a huge impact without using prescriptive laws or regulation.”

Dr Joy said banks like ANZ needed to be responsive to what regulators were saying about the use of behavioural economics - as well as what competitors were doing. 

“Regulators overseas, like the Financial Conduct Authorityin the UK and ASIC in Australia use behavioural economics to inform both their regulatory policy … [and] how they approach their supervision,” he said.

“It’s becoming a really interesting and powerful way for them to look at financial services regulatory problems. “

They also touched on how competitor banks are using behavioural economics and effective techniques for getting the right outcomes for customers. Watch the video above to find out more. 

Andrew Cornell is managing editor at BlueNotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

01 Jul 2016

How behavioural economics explains the Brexit

Dr Martin Joy | Senior Manager Public Policy, ANZ

If the Brexit – the UK’s decision to leave the European Union - doesn’t seem rational, you may be right.

06 Jun 2016

Why clients come first in financial advice

Kylie George | Former financial adviser, Harvest Wealth

Financial advice is often seen as a complex thing but in many ways it is quite simple. In my view, if advisers put clients at the centre of everything we do, we will never go wrong.

02 Jun 2016

Getting the balance right on compliance

Paul Edwards | Manager Operations Strategy, ANZ

Compliance. Is there any other word which can raise the hackles of workers so quickly? Take a straw poll of colleagues and you’ll find compliance issues are among the most common workplace gripes.