Can You Change A Consumer’s Financial Behaviors?

can you change financial behaviors

Growing up, I hated reading. I know, that isn't exactly uncommon when it comes to little boys. My mother, being the responsible parent she was, tried to break this habit. She would read to me at night, take me to the library to pick out any book that seemed interesting, remind me of the academic consequences should I neglect my studies -- trying everything she could think of to instill a love for literature, but nothing stuck.

Then the cash came out.

For a measly $2 per title, she created a bookworm. When it came to reading, I was extrinsically motivated, which is why her intrinsic tactics wouldn't work. (Though today, reading is a hobby... Mom got the last laugh.)

 

Changing Consumer Behavior

 

Regardless of your institution's business goals, you probably have an "ideal" consumer you'd like to attract. If you're all loaned out, perhaps you want to incentivize behaviors that drive higher balances. Maybe you aren't loaned out and you'd like to grow your non-interest income (NII). Or your institution is pretty set, but you see obvious savings in switching your consumers to e-statements. The point is, there are probably some behaviors you wish your consumers would adopt.

Research suggests that when it comes to simple, straightforward, transactional tasks, extrinsic rewards are effective at motivating behavioral change.

 

Do Rewards Change Financial Behaviors?

 

Kasasa has been in a unique position to study the impacts of financial incentives on consumer behavior. We work with hundreds of institutions across all 50 states. Our data set includes millions of consumers -- some of which have Kasasa accounts, others of which do not; and some of which we've seen their behavior both before and after making a switch to a rewards checking account. What have we found?

Effect of Rewards on E-statement Adoption

 

effect of rewards on estatement adoption

 

When it comes to encouraging the adoption of an e-statement, the offer of higher interest or cash back was effective. Our data showed that, without this incentive, only 35% of account holders would opt in for an e-statement. In fact, 74% of account holders with a conditional extrinsic reward adopted e-statements.

Effect of Rewards on Debit Card Transactions

 

effect of rewards on debit card swipes

 

The difference was equally as dramatic for debit card behavior. Consumers who did not have an incentive of higher interest or cash back averaged 13.6 debit card swipes a month. Consumers with a conditional extrinsic incentive had an average of 25.9 debit card transactions a month.

Effect of Rewards on Account Balances

 

effect of rewards on account balance

 

Account balances were higher in accounts that had a conditional extrinsic incentive when compared to accounts that did not.

 

Customers Already Know This

 

The data validate what we already knew and what consumers say they want. In our State of Consumer Banking study of consumer preferences*, account holders expressed a preference for extrinsic rewards.

data that consumers actively seek our checking accounts with rewards

In a follow-up study**, we found that 81% of Millennials say rewards are important when choosing a financial institution.

81 percent of millennials would change banks for rewards

Another finding of the study is that fees can be a motivator for customers to switch away from their current financial institution. While that is not a behavior you want to foster, it is further evidence that financial rewards (or punishments) can alter consumer behavior.

To see all of the insights from our study, download our executive summary. If you want to learn more about how Kasasa can partner with your institution to change consumer behavior, ask for a consultation.

 

*Online survey of 1,002 U.S. adults (ages 18+) commissioned by BancVue and conducted by Harris Poll, January 5-9, 2015.
**Commissioned by Kasasa and conducted online by Harris Poll in April 2016 among 569 18-34 year olds ("Millennials").
Andrew Swinney
Andrew Swinney