As Financial Literacy Month draws to a close, one thing is clear: The financial services industry is moving beyond financial education to provide tech-enabled guidance more likely to make a positive impact on the lives of their customers and on their own bottom line.
According to the results of a new survey of C-suite leaders by my organization, the Center for Financial Services Innovation, 65% of respondents believe that improving customer financial health requires doing more than providing financial education. Their offerings bear this out: A greater percentage of them say they provide coaching, personalized product recommendations and digital financial health management tools than generic educational content.
Overall, more than two-thirds of financial services leaders said that improving customer financial health is an important strategic priority, and that it is both profitable and a way to increase customer loyalty.
The research, conducted in partnership with Flourish, a venture of the Omidyar Group, surveyed 659 senior financial services executives regarding how they view their customers’ financial health. Financial health is defined as the daily financial systems that allow people to be resilient and pursue opportunities, including the ability to spend, save, borrow, and plan.
The survey included execs from banks, credit unions, insurance companies, retirement firms, and fintech businesses of all sizes. With 72% of people in America facing some level of financial struggle, firms that figure out how to help them are in the best position to successfully differentiate themselves in a market increasingly saturated with commodity products and services.
Industry leaders appear to be waking up to that reality. When asked to rate the importance of a list of possible strategic business objectives, 69% of survey respondents ranked improving customer financial health as important or very important, second only to enhancing the digital customer experience. It makes sense that these two objectives would dovetail, as successful financial health strategies are going to be fueled by digital tools and tech-enabled interaction. In fact, larger institutions report doing more to improve customer financial health, suggesting that institutions with greater access to technology resources are better positioned to succeed.
Fintech businesses and retirement firms appear to be furthest along in walking the talk. 81% of fintechs and 84% of retirement firms incorporate customer financial health into their strategic plans, compared with half of banks, 43% of credit unions and 58% of insurance companies. Moreover, they appear to be poised to execute on those plans: 81% of fintechs and 91% of retirement companies have an individual or team within the institution with responsibility for customer financial health strategy, versus 75% for others.
So, why fintechs and retirement firms? Startups tend to be focused more narrowly on one or two customer pain points, and without the legacy systems holding them back, fintechs have an easier time building from scratch with the customer’s needs at the center of the experience.
Retirement firms, meanwhile, are feeling the push from their employer customers, who are increasingly demanding “financial wellness” services be part of the offering for workers. Besides a looming retirement savings crisis, more workers are dealing with income volatility, lack of savings and cash flow challenges, issues that create stress and reduce workplace productivity.
Despite promising progress in some industry quarters, the results aren’t all rosy, with a sizable gap between what executives say versus what they actually do. For instance, only half of executives said that they have launched at least one product or service to improve customer financial health. And the ultimate question still looms large: Will financial health tools and offerings actually drive positive changes in the financial health of their customers?
Unfortunately, few institutions are in a position to answer. Only about a fifth of leaders say they regularly track and report on customer financial health as a key indicator of enterprise performance, or are incorporating customer financial health into employee performance metrics.
Making the leap from financial health as a buzzword to a business model requires two things: moving beyond traditional financial education into more dynamic solutions, and having systems in place to measure whether those solutions are actually improving consumer financial health. Because, as the saying goes, what gets measured gets managed.
Date: May 03, 2019