By Michael Kiella
In the future, it is predicted that bankers with the best understanding of behaviors and emotions will create a new landscape for personal banking. Understanding that delicate interface where electronic machine-banking meets the customer’s need for authoritative human interaction will lead to a new chapter in relational banking. It will be light on human touch.
Joann Peck, professor of marketing and expert in the science of haptics at the University of Wisconsin-Madison, acknowledges a problem that arises in electronic banking: The need to “showroom.” Humans have an innate desire to touch and hold the items that they purchase. They wish to inspect them. This is what Peck calls a haptic experience.
Peck goes on to say that money is an abstraction — a construct — and asks “how will the bank create the haptic experience in a world where millenials, and Gen-Zers are puzzled by the bank’s requirement for a wet signature?”
Peck says that her work is discovering “a deep loneliness and sense of disconnection that exists in millennial and Gen-Zers.” Whether bankers can identify ways to add a “physical touch” to digital delivery remains to be answered.
Relationship banking (the personal touch in finance) is the bailiwick of community banks. How can bankers restore the firm handshake across the desk that beckons from the past, but do it through digital channels? For now, we have to rely on a weak haptic experience — the sensory feeling of the ATM keyboard, or a smartphone taken in hand to engage a mobile banking experience.
Behavioral economics advantage
One approach to understanding how behavioral economics is being utilized in banking is to see what the super-regional and big banks are doing. The nation’s largest banks spend between 7 and 8 percent of gross revenue on advertising. That’s a big number.
Community banks do not have the capital resources to compete. Peck says that community bankers should just presume that the big banks are capitalizing on behavioral economics in their arrangements with marketing firms that manage their national brands and images.
Marketing professionals validate this claim and point to the marketing platform development processes that they use when creating a program for their clients. According to Sara Ramaker, an advertising content strategist at LKF Marketing, it takes more than knowledge of individual markets — but requires in-depth knowledge at the person-level and the target-group-as-person level to identify the relevant information and behaviors around which a marketing plan can have the most success.
The process of what gets measured and how it is used for behavior and emotional manipulation are proprietary and carefully guarded trade secrets. Just because you don’t hear the words behavioral economics, doesn’t mean it is not included in the analytics.
Large marketing firms often “mirror what we do at the university to test marketing content,” Peck said. This process requires a research design that clearly states the objectives of the advertising, what behavioral outcomes are to be measured, how they will be measured, and pre-launch delivery to focus or pilot groups that will be the first to assess the impact of the content and modify content to fine-tune the desired outcomes. Behavioral and emotional analysis does get validated.
Except in academic circles, the use of the term behavioral economics is controversial because it has the potential to conjure inappropriate manipulations, such as those manifested by the character Big Brother in George Orwell’s book “1984.” A cautionary tale, no doubt. Yet behavioral economics exists; find it in use inside of platforms that advertise as “technology-based,” “AI” and “analytics.”
As behavioral information is gathered, bankers would be wise to translate the behaviors into preference profiles. Data analytics give the banker a real-time view of how the customer wishes to interact with the institution; however, that input must be interpreted and operationalized. Does the operational structure of the bank support or complicate the banking relationship?
A perfect example of this phenomenon is the presence of data that says some late-boomers, millennials and Generation Z are averse to visiting a bank branch to conduct business. Bank futurist Brett King proffers that millennials focus solely on digital interactions; they dislike going to a bank branch, are unlikely to initiate a transaction with a phone call to an anonymous CSR, and they are bemused when someone sends them a check in the mail. Behavioral economics encourages bankers to structure service delivery to accommodate what is known about these customers.
Futurists like King are beginning to ask a question that is becoming more important: Who is qualified to utilize behavioral economics at your bank, and what skill sets are found on the resumé of those bankers?
Community banking executives have long relied on “relationship banking” as a central distinguishing theme in their advertising. This theme resonates in the marketplace. The bite-sized challenge for community banks is to tailor the bank’s meaning of “relationship” to appeal to the different groups within the bank’s market area by collecting data on the detailed financial behavior of their customers.
What does “relationship” mean across gender, age, marital status, financial asset, profession and personal vision that creates an ideal relationship in a community? How will banking executives measure if a marketing and advertising campaign created the correct “fast thinking” heuristic response? In a resource constrained environment, shouldn’t this all be decided before the first dime is spent?
New solutions to old problems
It was recently reported that Facebook will begin to reexamine its targeted and micro-targeting platforms that it sells to advertisers in a $55.8 billion market. The examination arrives on the heels of complaints to the company and the U.S. Department of Justice that advertising utilizing zip codes, age and gender contain nested or latent elements that could be used by advertisers to exclude minorities, women, seniors and people with disabilities from access to fair and equal opportunities for jobs, housing and home loans, in violation of federal law.
According to Galen Sherwin, a senior staff attorney at the ACLU: “Discrimination that we thought was stamped out in the ’60s and ’70s by our civil rights laws should not be given new life in the digital era…the web is not a civil-rights-free zone…”
Creative use of these DoJ and ACLU claims has the potential to be used in a positive manner. For example, targeted and efficient marketing might be developed that would specifically help fulfill the requirements of the Community Reinvestment Act by providing yet another method of behavioral economic understanding to community bankers seeking to develop an evergreen source of qualifying loans within a bank’s CRA audit area. This same principal might be used as well to identify minority-owned businesses, women-owned businesses and other regulatory-protected groups.
Community bankers could take the lead in order to prevent the negative uses of behavioral economics and big data to become subject to regulation instead of tools for good business practice.