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Behavioral Economics is the Key to User Engagement in Banking: An Interview With Jeff Kreisler

The science behind behavioral economics confirms that people make wholly irrational decisions. In the finance world, identifying which emotions come into play when people make the financial choices they do, can help bankers and those in the finance sector to understand why, whether it’s buying a house, withdrawing cash, investing money or saving for retirement.

To shed some light on the subject, we sat down to chat with the man of the moment Jeff Kreisler, a Princeton educated lawyer turned author, speaker, comedian and advocate for behavioral science. He's co-author of Dollars And Sense and Editor-in-Chief of

He shared his thoughts with us on behavioral science applied to banking.

Behavioral Economics - Strands - Jeff Kreisler

Behavioral Economics: what does it mean in the context of the financial world? 

Behavioral Economics is very important within the context of banking. Nowadays, data science is a very broadly-accepted discipline within finances, but having access to lots of data is simply not enough to influence consumer behavior. Take FitBit as an example - it acquired tons of information about daily activity at its disposal, but it did not motivate people to exercise more, because it did not incorporate the human element. When these two disciplines of data science and behavioral economics come together, the potential is massive.

In banking in particular, people have a very strong emotional reaction to money and finances. Even if they think they are making an entirely rational decision, there are always emotions involved. Therefore banks should be aware of those feelings in order to assist people in making better decisions with their money. We cannot change human nature - that’s impossible, but we can change the environment which nudges human behavior and influences decisions. Often companies design products and hope they will change human nature, but it’s always the other way around. We should create digital banking products based on a deeper understanding of human behavior.


Why should banks be interested in behavioral economics?

Banks have always been a trusted touchpoint for people. When people make an important decision, like buying a home for example, they have many doubts, questions and lots of missing information. Those decisions contain so many invisible emotions and internal biases - doubts, worries, excitement, confusion, fear of loss. Being a trusted partner and understanding how your customers react to these important life decisions is essential for giving good, and helpful advice.


What about the role of Chief Behavioral Officer with the bank? Is it necessary?

The role of Chief Behavioral Officer is key for any growing institution. It is particularly important in banking and investment arenas, because the industry is driven by numbers in its nature. However, there needs to be a person that looks at things from a bigger perspective, beyond mere numbers and data. The Chief Behavioral Officer understands both the business concerns and the science, and is able to draw conclusions from both disciplines. Truth is there are no off-the-rack solutions for applying all the insights, financial data, inputs from multiple sources. The key is to experiment. Try things. Having someone who leads these experiments is going to be crucial - especially in traditional industries like banking.


How do people generally think about money?

We could write a book about it, but here are just a few of the key principles how people think and about money and get it wrong:

  • People, in general, have a difficult time evaluating financial decisions or measuring opportunity costs. If you make a financial decision now, it impacts what you could potentially do with that same money in the future. That's tough to think about. So the way we end up thinking about money is based on uncertainty and our inability to measure what something is worth, the assess its value. Therefore we tend to take shortcuts, and find little tricks - that consciously or subconsciously convince us that we know the value of something... Even when we don't.
  • People tend to create mental accounts, just like we do within our online banking budgets- with saving, checking, retirement accounts. Sometimes we think about the money we spend on rent, on food or on bills in separate categories. In many senses it can help- budgeting is important-, but it is also irrational because all our money is the same, all part of one account, whether we spend it on food, leisure or something else. What also happens, is that we often break our mental accounting rules, like when one day we decide we want to go out with friends, we momentarily forget about our categories to justify a night out when we really shouldn’t.
  • Loss aversion is another important principle in financial decision making. That refers to how the pain of losing some thing is much greater than that of gaining or winning the same thing. If you lose 10 dollars, the pain you feel will only be matched if you gain 20 dollars. We get attached to things. This goes along with the endowment effect - the principle that people ascribe more value to things merely because they own them. This makes us more acutely aware of the loss - or potential loss- of our money than of similar gains, or potential gains.
  • Self-control: Even if we ultimately know what’s right and wrong when it comes to money decisions, we are unable to act rationally because we lack the self-control to apply this knowledge. We are emotionally connected to the present moment, but not the future. This is most apparent when it comes to retirement savings, because we are not connected to our future selves.


Can you give us some examples of institutions using behavioral economics correctly?

I think that companies in Fintech, healthcare and UI/UX take the most advantage of behavioral economics at the moment.

Here are some great examples:

  • Lemonade is going outside traditional healthcare Fintech to help people make better decisions in what seems a very traditional brick and mortar industry.
  • Merill Lynch took an interesting approach when it comes to retirement - they asked users to upload photos of themselves and then ran a photo through an algorithm so users see what they would look like in 30, 40, 50 years, and so on. It seems like an odd feature for an investment bank, but it ended up working. Users felt more responsibility to prepare for the future and they changed their financial behavior accordingly too.

It’s clear that currently the majority of companies embracing behavioral economics tend to be startups, because there is less risk attached to making changes. If big banks and financial institutions were to follow suit, they would have a huge advantage over the competition, using the information they have accrued on millions of customers to do testing and see what works.

I’m convinced that if these big financial institutions realized the potential that behavioral economics would have on creating new products, they would be converted and banking would be a very different thing altogether.


What kind of behavioral data should banks obtain in order to “nudge” consumers to adopt better financial habits?

I think it would be very good to know what mental state people are in when they make financial decisions. How do you feel when you walk into a bank, when you withdraw money, when you move money around or put money into your pension fund? What transactions cause the most stress or effect our mood the most?

Do people really understand the opportunity cost of their financial decisions or are they blagging their way through for fear of people knowing they don’t? 

Certainly when designing products, we can draw on all sorts of data and make infinitely more useful banking tools for our customers - it’s not easy by any means, but definitely not impossible!


Comments: (3)

Shailendra Malik
Shailendra Malik - DBS Bank - Singapore 24 October, 2018, 03:141 like 1 like

Interesting take on influencing spending patterns and also to influence saving patterns in customers. A great first blog to start with on Finextra

Miriam Ballesteros González
Blog group founder
Miriam Ballesteros González - HeyTrade - Madrid 24 October, 2018, 08:12Be the first to give this comment the thumbs up 0 likes

Thank you, Shailendra! Glad you found it interesting.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 October, 2018, 16:34Be the first to give this comment the thumbs up 0 likes

Great post. PayTM comes readily to mind as a finserv/fintech company that (in my assessment) makes heavy use of behavioral sciences. The largest mobile wallet in India has designed its app that resonates very well with human behavior towards payment apps: People want security by intent and convenience by action. It provides all the necessary security assurances and attracts customers. Once they start using the app, it knows it's very painful to enter a 8 character password on a smartphone virtual keyboard to make payments multiple times a day. In line with that, the sign out button is buried deep inside the app. As a result, 99% of PayTM users - who are Indians and are otherwise reputed to be obsessed with security - make payments without entering a password because they're always logged in!

Miriam Ballesteros González
Blog group founder

Miriam Ballesteros González

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This post is from a series of posts in the group:

Behavioral Economics in Banking

Banks can’t predict user behavior with absolute certainty, but they can help frame their financial decisions by understanding how choices are made, and designing solutions around them. This group is for all things behavioral economics in the banking industry.

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