Perspectives - Behavioral economics | KPMG | BE

Perspectives - Behavioral economics helps customers change the channel

Perspectives - Behavioral economics

By Daniel Knoll, Partner and Peter Harmston, Director, Financial Services, KPMG in Australia.


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There’s no doubt our built-in biases directly influence our decisions; whether it’s the car we want, which bank we use, or which banking channel we prefer for routine transactions.

Behavioral economics is an innovative tool that can help banks better understand the underlying decision making processes of their customers – specifically why some (the ‘sticky base’) seem to resist new low-cost service channels.

People often do what social scientists call ‘narrow framing’ – where they only consider the benefits and costs of immediate decisions. Ideally, banks need to encourage customers to make ‘broad framing’ decisions – where they take into account both the immediate and long-term benefits and costs of their decisions. To achieve this you need to fully understand the behavioral drivers of your customers and what realistically shapes their decisions.

One size doesn’t fit all

While the rise of tablets, smart phones and other innovations have helped migrate consumers away from traditional channels, the move has plateaued in some segments. Today we’re seeing the modest but material sticky base less inclined to use these more efficient, cost-effective channels.

By understanding ‘why’ they are reluctant to move, banks can target them with far more precision (both in how to approach them, what to offer, and how to deal with their inertia); providing more channel choice while achieving ‘lower-cost-to-serve’. This is particularly interesting for banks dealing with the big three cost areas: avoidable branch visits, avoidable calls to the contact centre and paper-based statements.

A number of banks have developed a ‘one size fits all’ solution to channel migration. While a broad-brush approach has worked for most, we are increasingly seeing that the principle of ‘if we build it they will come’ (in regards to new channels and customer adoption) simply does not work for everyone.

Multiple solutions, tailored to fit

Our experience has shown that dealing with this sticky base requires a broad mix of solutions implemented with surgical precision. The challenge for banks is defining the optimal channels in such a way as to maximize their own revenue and cross-sell opportunities, while ensuring their customers retain satisfaction and/or engagement.

A major European bank has had considerable success using behavioral economics techniques to work with several sticky base customer segments, including customers who: habitually used non-digital channels for simple transactions; customers who failed to register for internet banking despite being active internet shoppers; and customers who became dormant following internet banking registrations.

By looking at the underlying drivers of behavior (e.g. ‘novice behavior’, fear of failure, lack of awareness, perceived ease, etc), banks can have a more profound, positive and lasting impact on customer behavior. They can also apply these insights to simplify channels and connect the right channel with the right customer at the right time and ultimately, support their own bottom line.

With the aid of behavioral economics, helping late adopters to change channels doesn’t have to be a hard sell and can deliver material value for customers and banks.

Questions to consider

  • What ‘sticky base’ customer issues do you face?
  • Have you examined the root causes for customers resisting to embrace new channels?
  • Have you employed targeted, customized strategies to help individual customer segments adopt and embrace new channels?

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