Financial News: Banks Are Missing The Human Touch
By Christian Madsbjerg, US Director at ReD Associates
London’s bankers continue to rely on models and numerical data for deciding on what bets to make. It’s as if the financial crisis never happened. Yet, as Michael Lewis’s acclaimed book and subsequent film, The Big Short demonstrated, it is people who actually bother to venture outside the comforts of their offices who have a chance of gaining an important upper hand. Whereas models based on past behaviour aren’t able to show shifts before it is too late, a trip to Southampton or Leeds might reveal some priceless information, if you know what you are looking for.
Last year, my company, ReD Associates, along with Cognizant, set out to conduct an anthropological study on the future of money in the US, UK and Germany. Our mission was to tackle the very question the financial services industry has been too aloof to pose – namely, how do people relate to their money? And what we found was startling. Money is the biggest source of stress for people – above health concerns, their jobs, and terrorism. People’s financial worlds are fragmented and chaotic. They acquire accounts and make investments in a disorganised and ad hoc fashion, creating complicated and unmanageable financial realities for themselves. They are either too ill-informed or intimidated to invest, unsure of which stocks to purchase and scared that the bonds they buy will default. When it comes to their money, people don’t know what they want or why they act the way they do and are desperate for someone to tell them what to do.
This responsibility should fall on their bank. With unprecedented access to customer data and presumed expertise, there is no person or institution better suited for the job of helping people have a healthier relationship with their money. Nor is there anyone better positioned to gain from it. Comprehensive research from Nutmeg from March revealed that British adults have £721bn of ‘dead money’ sitting in bank accounts and ISAs. That money sits in nation’s banks like a dead weight simply because people don’t know what to do with it. If banks could demystify the possibilities of investment – speak to their consumers in a way they understood and enable them to interpret their finances – they could empower customers to spend that money in a way that was beneficial to both them and the institution.
Paradoxically, banks appear to be doing the opposite, cultivating relationships that are transactional rather than symbiotic, and encouraging the perception that the interests of the institution and the consumer are mutually exclusive. Nine out of 10 respondents said their relationship with their bank was defined by simple transactions. Any interaction beyond a deposit or withdrawal often left customers feeling bewildered and alienated, and reinforced the (accurate) perception that their bank did not understand them. Twice as many customers describe their financial institutions as wanting their money rather than wanting to help them get more out of their money.
One would think this was a lesson learned the hard way back in 2008. The critical mistake dominating the industry leading up to the financial crisis was that banks examined the world via models rather than observing consumers as they actually were. But today’s behaviour appears to be no different. Institutions continue to structure themselves around arbitrary product lines and departments rather than the customers they’re meant to serve; upper management continues to evaluate performance based on their own financial wellbeing rather than that of the consumer; and banks amass immense data about their customers, yet don’t recognise them when they walk into the bank – as if that data didn’t refer to something real, something human.
The result of this navel-gazing is that financial institutions remain oblivious to what’s really going on. If banks managed to take a real look at their consumers they would see just how closely people’s lives and their finances are intertwined and realise that to manage money is to manage human beings: their personal and professional ambitions, their milestones, and the messy, sentient reality of their day-to-day lives.
Part of this involves venturing out into the real world: Making sure more chief executives step out of their wing-tips and into a pair of trainers or work boots or take a stroll down Watford’s high street and observe their consumers face-to-face rather than from the distorted glass of their Canary Wharf tower. Ethnography is a woefully underutilised tool in the financial sector: if bankers and brokers could simply turn away from their screens and toward their consumers, they would realise that there is an incredible amount of money to be made by being just a little more human.
Banks frequently lament their inability to deepen connections with their consumer, but in order to do that they will have to transform their relationship with the world as a whole. They can start by getting out and observing people in their real environments, watching them spend, save and make sense of their money, and listen to them talk about what they find troubling and where they might need a helping hand.
While banks continue to spend millions on innovating and improving their technological capabilities in hopes of beating the competition, they should not lose sight of the human factor: a cheaper and yet most illuminative element which can give them a true competitive edge over their peers.