Blog: Can RSA research transform the banking sector?

The RSA mission is to enrich society by carrying out cutting-edge research and sharing powerful ideas. It’s an ambitious, wide-reaching vision that positions the RSA first and foremost as a facilitator. This is because we recognise our strengths and limitations as an organisation; we can’t change the world alone, but we can create the conditions that will equip others with the knowledge, tools and connections to generate positive change. The story below is an exciting example of how this can happen.

Charlie Palmer FRSA works at Fluxx, an innovation company that creates new products and services to drive growth for established brands. His team were recently approached by a building society who wanted help to design a new current account that would be appealing to consumers and set them apart from the rest of the market.

Many high street banks currently advertise joining incentives of £100 or more in the hope that it will encourage people to switch over to them. Of course, cash in the bank is tempting, but promotional ploys of this kind rely on two assumptions to make the business model financially viable:

1. That once you're a customer they can successfully cross sell other products to you  because it’s less hassle to open a second account with your current bank than shop around.
2. That you’re not financially literate and are likely to slip into your overdraft and incur charges at some point.

The latter assumption surprised me, yet according The Money Advice Service 16% of UK adults are unable to identify a bank balance on their statement and 14% of under-35s think it’s better to start a pension in their 50s than in their 20s.

The building society knew that they could not compete with banks offering such high financial incentives, so they decided to use what they knew about the public’s relationship with money in a completely different way. Their idea was to create a product which uses financial wellbeing as its unique selling point. Each feature of the account would be transparent, empowering, and actually help people learn how to manage their finances more effectively.

When Fluxx began to research the field in more detail, they found very little literature that delved into the psychology of poor financial management. One of the only papers that emerged was the RSA’s Wired for Imprudence report, released last year. The report outlines 6 clear behaviour hurdles for financial capability:  

There are already a few products on the market that are designed to help people manage their finances; they tend to do this by facilitating new ways of making payments such as contactless, digital wallets like ApplePay, and mobile payments through the PayM scheme. However, none of these features address the underlying issue, which is that that people struggle with budgeting. Furthermore, technological solutions can push people towards ‘cognitive overload’ – the second behavioural hurdle in the report. The research highlights that having a lot on your mind (several different accounts and passwords for example), impairs decision-making and can result in the simplest, rather than the most valuable option being selected from a choice of different products.

Using all of these indicators, Charlie and the team began designing an account with features that aimed to overcome all six behavioural hurdles. An example feature might be an automatic transfer process that moves small amounts of money into a different account, occurring whenever you are under budget. Or, a simple text alert notifying you that you’ve saved money today. Both would aim to produce the same feeling of instant gratification that the report identified as a barrier to saving. The central premise being, let's work with natural behaviours rather than fight them.

Enthused by Fluxx’s final proposal, the building society are now looking at the next steps in bringing this product to market. Although it comes with obvious risks, it could also radically reimagine the relationship between a bank and its customers, for the benefit of both. If a bank looked after the financial wellbeing of its customers, then it wouldn’t need to use cashback incentives to engender loyalty.  

During this process, Nic Gray, a colleague of Charlie’s at Fluxx, began writing a white paper looking at the banking sector and whether it would be possible to design a socially responsible bank. Could a regular bank ever feasibly transform into a force for social good? His vision was that banks could become more akin to financial hubs that translate complex financial issues for public benefit. While thinking about what a bank like this would need to do differently, Nic also turned to the Wired for Imprudence report to better understand how the identified hurdles make people behave.

In the midst of this work, Fluxx visited the RSA as part of a new innovation programme ‘Fluxx for good’. They facilitated a two day workshop with RSA staff to get us thinking about how we can work differently and have greater impact. One of the groups looked at the proposition ‘Reports (alone) Don’t Change the World’ to help us re-think how we present and communicate our findings. This concept caused Nic to reconsider how he was choosing to present his own research on banking, which at present, lay hidden in this white paper. Wasn’t it better to show rather than tell? He realised that he could devise experiments using behavioural psychology and test them out. This would provide proof of product and offer a far more powerful method of persuading companies to take the recommendations on board.

Both the report and workshop were catalysts that prompted Nic to re-think how Fluxx design products and present their thought leadership pieces. In turn, Fluxx are supporting the RSA to become more impactful. So far it has been a fruitful partnership with several pending outcomes – watch this space.