“A wonderful example of this principle comes from, of all places, the men’s rooms at Schiphol Airport in Amsterdam. There the authorities have etched the image of a black housefly into each urinal. It seems that men usually do not pay much attention to where they aim, which can create a bit of a mess, but if they see a target, attention and therefore accuracy are much increased.According to the man who came up with the idea, it works wonders.His staff conducted fly-in-urinal trials and found that etchings reduce spillage by 80 percent.”
Nudge theory (or Nudge) is a concept in behavioural science, political theory and economics which argues that positive reinforcement and indirect suggestions to try to achieve non-forced compliance can influence the motives, incentives and decision making of groups and individuals, at least as effectively – if not more effectively – than direct instruction, legislation, or enforcement.
Every industry has its set of consumers, and through ability of its influence, affects the decision making abilities of its consumers. Thus, all industries have a set of choice architects in them, who decide the path or context upon which consumers think and take decisions. This is especially true for consumer facing industries, which have to face cut throat competition, and engaging the customer is the key to success. That is where the power of nudge philosophy comes in. Take the example of malls and departmental stores, where placement and attraction are imperative to increasing customer purchases. In the DTH business, vendors like Tata sky have included the “default” channel (first channel shown when turning on Set Top Box) as their own promotional channel, which nudges the idea of the new services provided by the DTH operator. The nudge philosophy has its social applications too- by designing helmet storing mechanisms in bikes, and placing helmets along with the bikes at the showrooms, might increase chances of the customer buying helmets. Questionnaires, asked upon purchasing a two wheeler should include questions like “will you buy a helmet” and “when do you plan to buy a helmet” (priming effect). In Chennai, 98.6% of accidental deaths in bikes happen when bikers did not wear helmets. Smart marketers in FMCG companies are using the nudge of social conformity to increase brand visibility and acceptance- for example, the Dove Pink Soap Ad portrays a young female consumer, who upon using the soap gets “300 likes” on a social media platform. By using this technique, marketers are nudging people to conform to socially accepted definition of beauty and “follow the herd”. Some marketers use subtler techniques, like increasing the pack size of a product, indulging the consumer into thinking of larger volumes available at the same price. Savvy marketers like Lenskart, have sent SMS’s to customers stating that “your account has been credited by…”, which draws the attention of consumers and induces them to purchase on the website. Loss aversion is a nudge technique perfected by many insurance companies, whereby they show how the loss of an earning member of the family could bring financial difficulties, and how insurance products help in mitigating that risk. However, although majority of people in India are underinsured, there is the general notion (read overconfidence bias) that they are adequately covered- insurance companies have been trying to educate customers about this via their representatives, financial advisors, Ads, newspaper columns.
How can the nudge philosophy benefit the banking sector? How can we implement it in day to day banking to improve the lives of customers?
The nudge philosophy has to be used in the banking sector to improve decisions without limiting choices. It has to subconsciously appeal to consumers. This can be done by using a well modeled choice architecture keeping in mind the following attributes: 1. The power of Default options
- Giving Feedback
- Using the RECAP method.
The main objectives of banks to use nudge philosophy are as follows: 1. Customer retention and participation 2. Cross Selling of investment products to customers 3. Customer ease and satisfaction. During the customer on-boarding process, the architecture of a simple account opening form can nudge customers in many ways: the addition of simple add-ons like credit card, insurance, demat account as check-boxes in the form can increase customers purchasing cross-sell products. Several banks have started providing “insta” accounts to customers- pre-defined account numbers and customer Welcome kits that can be handed to the customers immediately during the on-boarding process- this is a big nudge when it comes to cross selling high end debit cards. For example, these “insta kits” contain “X” debit card that has more benefits than a normal debit card. To cancel this “X” debit card, the customer will have to “opt out” of the insta kit altogether. With acceptance of the Aadhar as an identity proof as well as its use for gas subsidies, all savings forms now have a space for the Aadhar number. Customers who have Gas subsidies are more likely to maintain their average balances, and an automatic enrollment facility of making the account the receiver of the subsidies can increase transactions and maintenance of balance on the account. A separate space for mentioning passport number, along with a forex prepaid card option mentioned side by side, can increase the cross selling of forex cards to customers who travel abroad. The power of default options in banking should not be ignored- a proper default option in any service can increase benefits tangibly. For example, the option of getting notifications via phone/SMS on the registered mobile number should be an automatic opt-in, with an “opt out” option. This will not only increase the number of customers who receive information of new product/services by phone, but will also reduce the number of people who opt out of giving their mobile numbers due to pesky sales calls. In fixed deposit forms, there is the presence of the auto renewal option, which renews the fixed deposit upon expiry of the term period. By perhaps including the auto renewal option as an automatic opt-in for fixed deposits less than 3 years, the banks could increase savings of customers just by a small nudge. Mobile and internet banking is a necessary growth driver for business growth of banks in India- India now has the 3rd largest internet subscriber base in the world. Creating a corporate website interfaced with Web.3.0 software, mobile responsive and optimized for search engines can drive exceptional customer experience and along with social media initiatives at multiple touch points, it can increase prospects for cross sell or up sell via inbound marketing. Use of omnichannel marketing is a great nudge, as the customer is made aware of the product/service from various channels of communications he consumes, thus subconsciously nudging the customer towards the product/service. For example, by marketing on Youtube, or partnering with content creators like AIB or TVF, the bank can increase brand visibility and acceptance of brands. The objective is to create an availability heuristic in the minds of customers, whereby they relate a particular product/service to the bank. A bank branch is a major cost centre for banks, and accounts for 60% of revenues generated. Thus, the objective of a bank branch is to transfer customers to other channels of transaction, and free themselves for cross selling of investment products. By placing TV’s and WiFi at cash counters, where customers have plenty of time to look around, banks can relay the information that shifting to digital is a hassle free process, and can perhaps force customers out of their inertia. Social conformity can also be used to induce customers into adopting digital banking. By encouraging employees to act as ambassadors of digital banking, they can induce the customers to turn to digital banking for daily transactions like checking balance, credit card due date, cheque processing status, etc. This approach will lead to increased adoption of alternative and cheaper channels of transactions. In rural/semi urban branches, the mode of communication via any channel should primarily be the regional language prevalent. By showcasing the regional language, it will increase comfort of the customer. Sadly, many banking and fintech apps do not have a savvy user-friendly interface in the regional languages, leading to neglect on the part of consumers who primarily communicate in regional languages. Banking technology and online banking has to keep in mind that consumption in regional languages is what will drive brand visibility in the hinterlands, and will expand their customer target base. A subtle nudge that can lead to adoption of premium accounts is by designing the bank branches in such a way that the Premium/high value customers’ separate room/enclosure is visible upon entry. This is done to create an aura of exclusivity, which will nudge customers to adopt premium accounts for the “social status” factor.
The power of analytics and big data in creating nudges – banks in this current environment have to adopt and use analytics in their everyday operations to be future ready. The wealth of customer information that banks possess can be tapped to create customer solutions that will enhance customer satisfaction and drive profits, a win-win for both. Banks have a plethora of information regarding debit/credit card purchases. If banks could analyze the online shopping habit of a customer, and include special personalized offers in its banking app that caters to that particular website/product bought online, it could perhaps lead to adoption of more online purchases.
Including names for accounts– Suppose a customer has an account number XXXX41256, which he uses for the purpose of paying off his loans and expenses. This can be named by default as “Expenses A/c”, and a fixed deposit created by a customer can have its purpose as the name for example, “My daughter’s wedding fixed deposit account”. This can prevent customer from prematurely breaking FD’s, or not straying from financial goals. Perhaps an even subtler nudge could be an online/SMS question like-“do you want to prematurely break your My daughter’s wedding fixed deposit account?”.
Using analytics, when a customer purchases drugs or pays for medical expenses at a hospital/pharmacy, SMS’s or calls or mobile app updates regarding the availability of health or life insurance products increases the sales of such products, because of the availability bias- You remind the customer of a recent bad event, and educate him for avoiding this bad event in the future. “This medical emergency has happened now, why can’t it happen again, so be insured”.
Using analytics, Indian banks can create a savings scorecard/ financial meter for its customers, which shows how financially sound a customer is with respect to his peer group. Using personalized features like ‘you are saving 20% less than people in your area’, or ‘if you move to a fixed/floating rate home loan you can save Rs.5,000’. The trick here is to create a more personalized scorecard, like HSBC in UK has done. The peer group selection can be on the basis of occupation, area, income group, liquid balance in accounts etc. Using this feature, banks can recommend a mutual fund suiting the tailor made needs of customers more easily. For example, if a customer is profiled as ‘high achiever’ based on his scorecard, the bank should pitch only equity oriented funds and balanced funds. This way the equity exposure will remain high, and the “1/n” diversification bias that all customers have will in the end give a higher equity exposure, as customer will purchase those products that are pitched, even if they diversify.
Generally majority of customer tend to miss their premium due dates, due to forgetfulness and inertia. A simple way banks have removed this burden from customers is by introducing ECS for premiums. In cases where customers have opted out of ECS, banks tend to phone customers a stipulated number of days before the due date and frame questions like ‘Your premium is due in 10 days. When will you be paying the premium?’.
Encouraging loan offtake– For personal loans, setting a separate ‘personal loan’ tab for consumers who are eligible for personal loans in mobile apps and Sending personal loan SMS/calls when any major withdrawal/deposit in customers account is noticed can lead to a nudge towards taking personal loans. Car loans can be nudged to consumers by implicitly telling consumers about the launch of a new model of car or price reduction in existing models, either via omnichannel or directly at the branch. Along with a brief review of the car model, this nudges the customer into liking a particular model, which has a tie up with the bank. The idea is to subconsciously influence the consumer about the cars by using various channels of communication. This can nudge customers into taking car loans.
Thus, with the power of nudge, we can encourage customers of banks to engage and adopt more products, and in the process create more customer satisfaction and provide ease of doing banking transactions. What is needed is not to spend billions on advertising and predatory selling, but creating behavioral changes in the customers, so that there is higher acceptability of financial services.