Four Principles for Designing Personal Financial Coaches (PFCs)

Mandana Dilmaghani
Service Design Lead, Virtusa xLabs
Article

Retail banking is not what it used to be. Since open banking has opened the floodgates to a variety of alternative financial services, banks find themselves struggling to hold on to their customer base, not to mention to attract new customers.

Challenger banks and start-ups do not only have the advantage of innovating faster due to a lack of legacy tech, but they are customer centric in their approach. Their fresh point of view on an old industry enabled an exponential growth in customers over the past years and means that they are successfully taking away business from traditional banking giants.

Long gone are the days when every bank offered the same set of products, and they were able to rely on people’s financial apathy to make customer churn unlikely. Banks must pick up steam to keep step with the Fintech market and not become a purely transactional player in the wider ecosystem of people’s finances.

One of the first hard truths that many banks still have to come to terms with is that customers don’t care about “banking” – banking is a means to an end, and people’s lives are colorful and complex.

Rigid banking products have to make way for more bespoke services that meet customer needs and are driven by customer journeys that complement people’s lives.

When taking a closer look at the financial lives of people across the globe, it becomes clear that thus far, banking services have not managed to help people develop sustainable financial behaviors: half of UK adults do not have enough savings to cover an unexpected bill of £300 (FCA ), and more than 74% of employees in the United States would experience financial difficulty should their pay checks be delayed by a week (American Payroll Association ). Interestingly, the latter does not only affect low- income households but also the majority of high-income professionals making more than $150,000 a year.

Nevertheless, the recent market surge in personal financial mangers (PFMs) and personal financial coaching apps (PFCs) is turning features that help customers learn better financial behavior and achieve financial wellness into table stakes for banking apps. As traditional banks are under pressure to evolve their product and service offering and adoption of Open Banking features within their own banking applications remains low, a pivot towards offering PFC services emerges as a new device for winning the battle for the customer relationship.

As you embark on your PFC journey, four guiding stars will help you navigate your ship in the right direction:

1) Start with one type of customer

“We don’t have a target user. What we build has to work for everyone.” It is a common misconception that products and services will have greater uptake and more success if they are created to serve ‘everyone.’ Customers of most retail banks come from very different social backgrounds, covering an age range that spans from college students to retirees. They include people who have high financial literacy to people who are struggling with the basics; these people have very different coaching needs. Many successful PFCs have started by identifying one particular customer behavior to support. The chatbot-driven app Plum, for example, automatically sets aside ‘safe to save’ money for customers and offers the option to auto-invest it. Another Fintech start-up, Toucan, has found its purpose in helping financially vulnerable middle-aged people manage their money better with the help of a friend.

Primary research with customers will provide you with the insights that help you build a clear value proposition, whether it is helping people prepare for the future and save for retirement, get out of debt, or control impulse spending.

2) Design for lasting behavioral change

The key to long-term financial wellness lies within changing people’s behaviors.

As humans, we are wired to repeat tasks that promptly provide us with a reward or a positive feeling of accomplishment. Therefore, breaking down large and intimidating endeavors into small, achievable micro-actions is the first step in helping people make larger-scale changes to their finances. Here we can take learnings from social media apps such as Instagram or mobile games like Candy Crush: a gamified reward system that builds upon people’s intrinsic drive of self-improvement or social reinforcement and triggers repeated engagement with the app. In the case of PFCs, these mechanisms can help build up a habit of engaging and getting comfortable with one’s finances and goals. Establishing habits and forming positive emotional responses does not only change the customer’s attitude to their finances but help build loyalty to your bank’s PFC service over time.

3) Whenever possible, do the work for them

Getting people to commit to change is easiest if virtually no effort is involved. With contactless payments and browsers prefilling card information, spending is a lot easier than saving, and for many people sitting down and taking the time to figure out where and how they could save money is a daunting task. As artificial intelligence (AI) enters the space, spending analysis and financial decision making can be exerted by the PFC on behalf of the customer. Apps such as Look after my bills (which does pretty much what the name implies) and savings app Digit are already employing this approach successfully. With AI becoming a more prevalent element of everyday life, this will soon become table stakes for an effective PFC app.

4) Design for trust

While most banks consider themselves “a trusted partner” to their customers, when you speak to said customers, they generally paint a very different picture. Two-third of British adults believe that their bank does not have their best interest at heart (YouGov ). There is more to being a trusted partner than being a longstanding, established business. In fact, in many cases, newcomers – the likes of Monzo, Starling, and Revolut – score higher on trust than traditional banks as they are often more straightforward and open in their communication and their approach to customers.

Demonstrating trustworthiness and acting accordingly is vital to the success of a personal financial coach, as money can be a delicate topic, and handing over visibility and control over one’s finances is a significant hurdle towards PFC and Open Banking adoption. If a PFCs is designed to be a cross-selling device, users will be quick to catch on to that and move to different providers. A trustworthy PFC service will be transparent and honest in its communication, display its competency by specializing in few, specific features and offering guarantees in case of failure, and openly share their motives and monetization approaches.

Digit, for instance, overcomes the hurdle of placing trust in AI by offering customers a safety net through their no overdraft guarantee. Should a transaction made by Digit’s robot incur an overdraft fee, the company will cover the cost.

As banks are pivoting toward strategies that are more focused on user need, features that help customers on their journey towards a better financial life are developing from optional to must-have. While PFCs have been making waves for a while, the category encompasses a wide range of products, and banks have the opportunity to identify their own take on PFCs and offer their customers a solution that is unique to them. In a sink or swim market, this will be the key to winning (back) customer interest and trust.

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