Solid foundation for financial wellbeing

How are the responsibilities of financial institutions and pharmaceutical companies in any way similar?

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It is a comparison Mohamed Khalil, Head of Financial Wellbeing, Research and Design, ANZ, likes to make, to reframe how banks and other lenders think of their duty to deliver services to customers.

"We need to start thinking about the role that we can play in improving financial wellbeing, not just being really good at delivering our products and services to our customers.”

Khalil joined ANZ in October 2021, with vast experience applying advanced behavioral science to a suite of products across financial services and other sectors.

He is now bringing that knowledge to ANZ and focusing on wellbeing as a way of improving life for its customers.

Khalil points out that just as pharmaceutical companies produce the medicines we need to maintain and improve our physical health, financial institutions create and distribute the products that can support our financial health.

However, he says sometimes it is hard for consumers to make the best choices to achieve their outcomes – and this creates a fundamental existential question for banks.

Khalil explains that as a consumer you are thinking about multiples objectives – getting over a cold, eating healthy foods, exercising consistently, and taking your vitamins.

“If you don't necessarily know how to bring those things together and you don't have an organisation that's focused on the outcome, then you're not really going to be that thrilled and excited about that service, he says”

Choice architecture

Khalil says the fact customers want someone to help them care for their financial well-being over decades creates opportunities for forward-thinking financial institutions.

“In that world, we need to start thinking about the role that we can play in improving financial wellbeing, not just being really good at delivering our products and services to our customers, but also then working with our customers to ensure that they are buying that home, while paying off that debt, AND saving for their future in the way that they want,” Khalil says.

He says financial wellbeing is an individual’s ability to meet obligations and make choices that allow them to enjoy life today, tomorrow, and in tough times.

“Financial health is a lot like physical health. When things are going well, you don't really think a lot about it, but when things aren't going well, it can take a lot of time and effort to put yourself back on track.”

Khalil says one thing banks can do is think about ways tohelp improve what behavioral scientists call a customer’s “choice architecture”.

In its simplest sense - choice architecture can be anything from putting your running shoes by your bed to go for a morning jog or filling the snack bowl with fruit rather than chips and chocolate.

“There are similar things that we can do from a banking perspective that can help consumers make better choices throughout their life.”

Data meets behaviour

Work in the sector has been helped by rapid advances in developing objective data driven ways of measuring  financial wellbeing and advances in behavioral science over the last 30 years better accounts for human biases in a way neo-classical economic models did not.

“Our research brings those two sides together, really understanding what financial wellbeing is and what drives it, as well as really understanding how we can change the way that consumers make decisions so they can get better at it, says Khalil”

Behavioral science is now being tied into offers like ANZ Plus and the way goal savings are framed, ensuring customers set the right targets and track toward their goals effectively.

“It's bringing this scientific lens to our understanding of human behavior and practically applying it to the way that we design products, services and experiences in a way that we know will increase the likelihood of success.”

“There are no panaceas or silver bullets, but there's certainly a lot that we can do, to really improve the chances of our customers doing well.”

The future

How will this change the way customers engage with financial institutions?

Khalil says the biggest change over the next two decades will probably create at least two categories of financial firms, financial service providers and financial health providers.

“Financial service providers will be very good at the manufacturing, marketing, distribution and servicing of products.”

“In a world where we have five-minute mortgages, it's not long before we'll have five second mortgages.  And so, 20 years from now, consumers’ ability to find the best rate in market, find the products that meet their needs is going to be a lot easier … and so one category of banks will have to be really good at doing that.”

But he points out this part of the market - manufacturing, service, distribution, and marketing products - is also fraught with danger.

“I don't know if that's a winning strategy, because you put yourself at risk of disintermediation by fintechs and big techs,” Khalil says.

Financial health provider

But he says there is a second category that better suits an institution like ANZ.

“A financial health provider, an organisation that is not just focused on being able to do those things really well, but also on helping you achieve your outcomes.”

Khalil says this involves helping people achieve goals rather than simply putting products in their hands.

A conversation that you might have with the financial services provider could be, “find me the best rate or help me maximise my benefits.”

“A conversation you might have with a financial health provider is ‘help me figure out all the things I need to do to pay off my mortgage before I retire, while also ensuring that I'm setting aside enough to retire comfortably’.”

“And that is a different problem to solve than just get me the best rate…We’ll know we’ve been successful as a bank when we can say that our customers, are better off financially as a direct result of banking with us.” 

And that, according to Khalil, is a better path towards a deeper, more meaningful, and trusted relationship with our customers that would fulfil our brand promise and deliver better, more sustainable business returns.

Jeff Whalley is a journalist with ANZ bluenotes.

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

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