Why financial well-being should be integral to banks’ customer strategy

What is financial well-being? Is it just being wealthy? Or is it having the information and capabilities needed to manage money, keep protection costs down, and invest and save in a way that promotes a more general sense of wellness?

EY teams define financial well-being as “the ability to make confident, well-informed money-related decisions resulting in financial security for both the short and long term.”

This kind of financial well-being isn’t just about being able to make and afford “life event” decisions – like buying a new or house, getting married, or saving for retirement. It’s about thinking of finance as a utility – a service that is continually available to support our overall well-being, whereby we have enough confidence in our ability to spend, save and invest so that we can fully engage with our day-to-day lives, jobs, and society at large.

Ultimately, it is beyond being able to make and afford the macro-decisions for the macro-moments, it’s about being able to make and afford the micro-decisions for the micro-moments along the way.

Previously, attaining this kind of financial well-being was a matter of personal responsibility and prudence. But as digital has come to improve the customer’s experience in other areas, is it time to demand improved services and options from banks as well?

The social impact of financial stress

Long-term financial stress is increasingly being recognized across society for its impact on happiness and productivity. Its impact can be seen on many levels:

• Mental health: Money worries are real. In the UK, a study by one bank found that 63% of adults say that money issues have negatively affected the mental health of someone they know. Of those who say they are personally worried, 36% report changes in mood or temperament, and 31% report trouble sleeping.
• Physical health: Failure to manage finances can directly impact on physical well-being – particularly in cases where individuals do not have access to medical insurance or single-payer services. In the US, EY research on corporate wellness found that 20% of adults say they would consider skipping a doctor’s appointment due to money worries.
• Productivity levels: According to EY research (pdf), 30% of employees say they think about personal finances on the job, and 83% of HR professionals say that this concern negatively impacts performance at work.
• Social engagement: Financial well-being also impacts people’s ability to engage effectively with the society around them. In a US survey, 87% of those who said they were thriving in terms of financial well-being reported their relationships with their partner or close friends were stronger than ever; this dropped to 61% among those who rated their financial well-being poorly.

The role of financial institutions in financial well-being

With FinTech’s growing fast, it’s easy to assume that their success is down to their technology – which is why so many traditional banks are increasingly investing in technology or partnering with FinTechs to keep up.

In most cases, though, their growth is actually down to finding new ways of servicing customer needs, and not just new ways of providing digital banking services like customer service chatbots or account updates sent to people’s smartphones.

Rather, what’s behind many banking customers’ expectations is the desire to have confidence about finances. The desire to have faster access to better information through digital tools – a desire that has been met effectively by the most successful FinTechs – is not just about wanting better tools and services. Instead, it’s about wanting to develop and maintain a sense of financial well-being.

A move like this makes good business sense – increasing customer loyalty at a time when banking customers are switching providers more than ever. For financial institutions, making these customers more secure should prove a long-term source of revenue.

This means banks that embrace financial well-being as a core principle must demonstrate how their digital products and services create lasting value for their customers.

Turning financial well-being into a banking business model

Financial well-being is a fundamental principle for the world’s first behavioral bank, South Africa-based Discovery Bank. The bank is anchored in the Vitality platform, which uses financial incentives to help customers curate and sustain healthier lifestyles – integrating physical well-being into financial well-being. For example, Discovery’s offering – which EY teams have been involved in building – includes benefits from Vitality partners, such as 100% cashback on gym membership.

Along with offering customers rewards for responsible spending, healthy eating and exercising, the digital-only bank aims to help them understand and improve their financial behavior, unlocking greater long-term value in the process.

By setting out how people can benefit from being financially healthy, Discovery Bank is reimagining how a financial institution and its customers can mutually benefit from greater financial well-being.

It’s a lesson other banks need to consider carefully. And while there is no set rulebook for implementing more reactive, engaged banking solutions, the following steps can help banks deliver products and solutions that truly work for their customers and expand their operations:

1. Redefine customer experience: Putting customers and their needs to the forefront of your thinking is critical to building solutions with staying power.
2. Take a mobile-first view: From contactless banking to account access, customers expect product and service accessibility from portable devices, at a moment’s notice.
3. Develop a data strategy: Building solutions means knowing what data you have, what data you need, what questions you need to ask of that data, and how to interpret the answers. Centralizing existing datasets is key.
4. Select the right technology platforms: When building new services into operations with extensive legacy processes and assets, and as subject to regulatory scrutiny as banking, taking your time choosing which platforms to use and how to use them is essential.

To remain relevant amid a competitive culture that is promoting new ways of managing money, all banks need to refocus on helping their customers meet their personal needs.

It’s no longer enough to simply offer accounts, savings or loans. If we want people to be more broadly served financially, then we need to engage them in a digital dialogue. What’s more, banks need to be more proactive in helping their customers achieve lasting financial well-being so that they can secure long-term loyalty in this age of the empowered consumer.

This article was co-authored by EY Partner, Jay Pather, Consulting Financial Services, Africa, India and Middle East.