How personal could personal finance become? Will there come a time when our financial products and services are as tailored to our individuality as our bags, earrings, scarves and shoes?
For the most part, personal finance products and services are highly standardized. Account types, online banking interfaces, and debit cards look pretty much the same, no matter who you are. Advertisements for financial products “tailored to your needs” promise personalisation, but in reality, this sales technique aims more at making the customer feel welcome than actually at creating a differentiated product.
But as finance becomes more individual-centric, products are set to be far more personal than they are today. Both digital products (such as app interfaces) and tangible products (such as cards and other means to pay) are far more able to be customised to individual preferences due to two factors. First, technology makes it cheaper to produce differentiated physical financial products. Second, the increasing diversity of products and providers available, largely due to digitalisation, means that if consumers aren’t happy with the design of one product, they can use another.
How should companies start thinking about adapting to consumer needs? Personal finance and its future will be one of the tracks debated at the Fintech Vortex on the 26th September. Come and join us, or follow the conversation on Twitter. In the meantime, here are some thoughts on the significance of personalisation in the financial services industry.
Be sure to read up on SME Capital & Investment and IoT & InsurTech, and stay tuned next week for an article on the Cyber Security & RegTech track, as well as Part II of SME Capital & Investment. Join the conversation with us @HollandFinTech on Twitter, #FintechVortex.
Why personalisation matters
The term “personal finance” is generally used to refer to any kind of financial management undertaken by individuals and households, but not for commercial purposes. Personal finance products and services include bank accounts, pension funds, insurance, budgeting tools, credit / debt products, and more. While these products vary significantly, all are being slowly transformed from generic, one-size-fits-all products to ones that are tailored to an individual’s or household’s needs and preferences.
This personalisation trend matters because it reflects a shift in how financial service providers think about how consumers relate to their own money. Today, consumers expect financial services to be personalised. This contrasts with the long-held belief that consumers do not find financial products interesting, but rather only use them to achieve some other goal.
One major reason why this belief in consumers’ disinterest persists is that it is notoriously difficult to get people to engage with their finances. Most of us are reluctant to save money, plan for retirement, shop around for the best interest rates, and so on.
Explanations for our reluctance to plan our finances have usually cited financial literacy and our general disinterest as the main causes. But what if the problem actually lies in how financial products and services are designed and disseminated?
Personalisation has the potential to overcome our apathy towards our finances and even increase our trust in financial service providers. Creating products and services that are aesthetically pleasing, tailored to the user’s experience, and include elements of gamification could well tip the balance when it comes to convincing people to engage with their own money.
Money is not boring
Making money interesting and fun may sound like a lofty goal, but it is not so far-fetched. The idea that people are uninterested in money is certainly based in reality, but it is overstated. In fact, people do often take a personal interest in their finances, and may even feel affection towards them.
These positive feelings towards money and finances generally occur when people can associate them with social relationships. Let me illustrate by way of an example. In 2012, the Citi Money Gallery at the British Museum opened a new exhibition. Whereas traditional money galleries usually focus on coins, promissory notes, and other traditional forms of money, the new gallery includes a range of displays that focus on the social history and current practices of money. Not just for coin-collecting enthusiasts, the money gallery had something of interest for everybody.
It was a huge success. People were spending far more time in the new gallery, lingering over the displays. Why, all of a sudden, was money so much more gripping? The answer, said curator Katie Eagleton, was the social aspect. Once people could relate money to their social lives, it became far more interesting.
Eagleton’s observation is backed up by decades of social science research into people’s relationships with money. People are not actually ambivalent or hostile towards money and finances. Rather, banks and other financial service providers have historically marketed their products in ways that focus on accounting rather than what financial products and services can do to improve people’s lives.
Money helps individuals to achieve their goals, such as buying a new outfit or car. Financial order helps families to enjoy each other’s company and plan for future goals. And money itself can be interesting and highly social, which is why governments go to such lengths to adorn banknotes and coins with historical and cultural designs.
Changing how providers serve people
The good news is that many financial service providers are well aware that this personalisation of financial products is inevitable, and they are already adapting. For some years now, many banks have permitted consumers to choose the design on their credit card, and many are heading towards becoming “everyday banks” that centre on customers’ everyday needs.
Beyond banks, digital services and regulatory changes are opening up many more possibilities. Consumers can increasingly integrate apps with their bank accounts, change the interfaces they use to access information, set preferences for what information they want to see. They can create their own financial toolboxes with elements from different providers, buying health insurance from one provider, travel insurance from another, transferring money through different companies, and so on. Consumers can access most, if not all, of these services through their mobile phones, meaning they do not even have to leave the couch or the café to manage their money.
Providers that are lagging behind this trend, such as pension funds, will also need to jump onto the customised bandwagon, or they will find their customers developing loyalty to other brands and business models. The market is simply becoming too competitive, and dissatisfied consumers will use their choice to source financial products that suit their aesthetic preferences and social needs.
So, come along to Fintech Vortex and speak to fellow professionals who are sharing their expertise via the Personal Finance and PensionTech Track. And don’t forget to accessorise with your favourite financial tools.
By Erin B. Taylor, Senior Researcher at Holland FinTech
Want to learn more about Holland FinTech and the insurtech firms in our network? Join us at our FinTech Vortex event in the Hague on September 26th, 2017. Tickets available here.