#2 User Empowerment — A Strategic Business Capability for Fintech

This is the second post of series on user empowerment, check out the first post here.

3 Dynamics of Consumer Empowerment

· User empowerment is a strategic business capability in the digital age

· User empowerment concerns everybody

· Realising the full potential of financial services by tapping into empowerment dynamics

As discussed in the previous post, whichever one or which combination of analytics, nudging, feedback and automation is used, depends on many factors — there is no single recipe. Empowerment dynamics can be all generated at any point along the continuum of the relationship between financial services providers and users. These dynamics are unique to the business model of a company. However, in attempting to find overarching broader patterns across digital financial services today, I find many business models can be clustered around a combination of three empowerment dynamics. I found reducing trade-offs (1), mobilising latent assets (2) and contributing to the relationship between responsibilities and opportunities (3) are recurring themes across the board of financial services. Building on a long-term view of the relationship between service providers and users, all three dynamics introduce the notion of cycles and development into the relationship between customers and financial services providers.

1. Reduce Trade-offs

Whether a company is involved in trading, payments, debt or credit, one of the underlying dynamics of empowerment lies in reducing trade-offs. Financial services have limited themselves to seeing and tackling only monetary trade-offs. Yet, there are many more trade-offs which play into financial and over-all well-being. People face trade-offs daily and their ability to take decisions in the face of uncertainty plays an important role for being better off in the long run. Some trade-offs are so notorious, that we call them biases and give them names: Long versus short term thinking or discounting the future.

These trade-offs are neither inevitable, nor are they fixed. They are a function of information and incentives. As such their extent can be reduced or increased. Services which are guided by an awareness mind-set beyond monetary wins and gains, can build the capabilities to deliver information and a user journey which provides opportunities for timely decisions and can reduce trade-offs.

A pioneer in building this capability is Betterment, a wealth management robot-adviser. Betterment is active on all three fronts of the decision continuum; feeding information back to users, nudging and automating where appropriately. A dedicated team engages with a variety of behavioural biases and learns and adjusts these over time. Betterment incentivises customers to put money aside for investments on a regular basis and automates the transactions; they aim to reduce the impact of behavioural biases on investments through a set of reminders, individual messages and individual anchors. These interventions and nudges help users to gain a more objective understanding of the status-quo. Moreover, by visualizing investors’ future life and supporting them in creating tangible, bite-sized goals they help them to overcome present-bias and the tendency to discount the future. Betterment enables users to keep the bigger picture in mind — not only as investors but as the individuals that they are.

2. Mobilise and Leverage Latent Assets

Financial services have developed a wealth of methods through which they can leverage slumbering assets and turn them into profitable investments. Some fintech companies like Acorn extend this service even to the tiniest amounts, lowering boundaries to participation for those who have small or irregular incomes.

What counts as an asset extends with growing technological capabilities. Whereas traditionally, by latent assets we mean money laying around which could be put to better use, today, we also include a range of personal items, time and space in the equation because we can extend and charge for their usage almost friction-less.

In the digital economy latent intangible assets outweigh tangible assets. Your name and reputation, your network of friends and colleagues, your understanding, grasping and responsiveness to opportunities that present themselves to you at rapid pace are all latent competencies and skills. For financial services this means, that their value proposition needs to extend into these different, non-monetary and intangible spaces of latent assets.

Well-executed and wisely designed financial services are creating value by activating latent capabilities. As these are nurtured, they give way to behaviour change, new skills and competencies. Moreover, digital financial services which start with the individual’s latent capabilities lend themselves to become a platform for any decision making process. This is digital empowerment, because such services are not restraining themselves to enable faster transactions but also users’ abilities to make better decisions. And this will insure not only a better financial standing but also a better overall well-being.

Fidor Bank is a digitally native bank based in Germany. What distinguishes Fidor from other digitally native banks is their community model. Fidor’s Smart Community actively involves users, incentivises and rewards active participation. Users who ask and users who answer questions get instant financial rewards and long-term recognition. Discussions are public and accessible by everyone, extending well beyond Fidor products. As their website says ‘here you will find a free overview of the advantages and disadvantages of products […] whether you are seeking advice about travel, shopping, energy or insurance, you will find a wide range of practical tips’. Users filter, feedback, analyse and digest information for each other. This creates a mutually beneficial growth loop allowing everyone to build and benefit from each other’s latent skills, time and experiences.

3. Contribute to the Relationship between Responsibilities and Opportunities

Money and personal finances are both a responsibility and an opportunity. The way in which an individual responds to them sets off a chain of events, out of which new opportunities and responsibilities emerge. Saving money is a great example where we can intuitively see the connection between the two and how it can play out in a positive or negative way. But even smaller financial decisions like paying bills, or one-off decisions, like opening a bank account or paying for transactions impact what we can do next. The way we choose to deal with them can either enrich or diminish our scope and ability to respond to future challenges.

When we seize opportunities, we often taking decisions which involve a financial transaction. Financial services are the enablers and gatekeepers of those decisions and transactions. On a very basic level, they provide the technological instruments through which transactions are made possible. On a more fundamental level preceding any transaction, they also set the stage for how their customers make decisions and reach conclusions. On both levels, financial services firms influence the link between responsibilities and opportunities. But whereas technicalities can be maximised only to a certain extent, optimising decision making processes is limitless. Contrary to the technological level, making decisions is complex. This space knows no clear boundaries. There is no clearly recognizable discernible best choice as the firm engages with the complexity of human choice and decision making. As technological advances become ubiquitous and do not suffice for sustained competitive advantage, this is the realm where businesses must build their unique value proposition.

Many companies are aware that user experience, colours and timings, reminders and e-mails impact user engagement and that a misplacement of a button can drop engagement overnight. What companies are less aware of is that engagement and empowerment are connected. A financial services firm’s impact on the financial decisions of users is everything but random and out of their control. We know from a myriad of behavioural research that people are susceptible to even the slightest changes in how questions are framed, and the way in which information is presented. There is not a single element that can be changed by design without having an influence on how users reach financial decisions. They will always either enable and enrich the scope of possible decisions or impoverish and limit the scope of a multitude of ways that users can choose to respond to the recurrent waves of responsibilities and opportunities.

Payoff is a financial progress platform. Having started with loans to refinance credit card debt, the company now understands itself as a financial wellness company. According to its slogan ‘Healthy, Wealthy, Wise’ Payoff offers a variety of services, which holistically take into account the dynamics and spill-over effects between responsibilities and opportunities across different aspects of life. They offer a suite of services demonstrating their strategic focus on helping users to maximise their opportunities beyond financial performance. One of them is helping users in the event of job loss. Payoff will not only work out a new payments plan for loans, but it extends itself beyond financial support, giving users access to a team of recruiters to review resumes and give interviewing advice. Payoff maximises users’ opportunities while helping them to take care of their responsibilities.

Network-effects of Empowerment and Mobility

The three dynamics of empowerment fundamentally alter the relative standing of an individual, to which there are two dimensions — embeddedness and mobility. On the one hand it is the relative embeddedness of the individual in regards to financial services as a whole, and on the other hand it is individual mobility relative to one’s individual potential.

We can picture embeddedness as the density of the financial services, in which an individual is entrenched. This net consists of all the financial services an individual uses or could use. As all services are interconnected and interdependent, their total impact depends on network-effects. Empowerment on this level, is about the extent to which one service integrates with a variety of other financial services and how a decision taken on one platform affects users at the other end of financial services. Network effects and eco-system development have become key terms in fintech and other digital industries, but we have yet to embrace their impact on customers and design for positive network effects.

An example of how positive network effects with regards to user empowerment can be generated is Payperks. Payperks is a behaviour and education app, which integrates with card providers to drive positive financial habits. Engaging with Payperks leads to a direct increase in the value users receive from using debit cards and to an indirect increase in customer benefits associated with other financial services. As Payperks builds symbiotic relationships with customers, banks, card providers and governments alike, everyone benefits in more than one way. In fact, the benefits to the user and other eco-system players multiply with each additional touch point the company builds.

Empowerment is also mobility. During a customer research call for Payperks, one of the companies I worked with as an Anthemis Fellow, the interviewee explained what she valued most about that company was that it helped her to ‘make her money go further’. This is an example of empowerment as mobility. This is not about enlarging the pool of money, but about enlarging the opportunities that a given amount of money carries. Increasing the mobility of money, means increasing the value that a given amount of money brings to the user. Empowerment then can be described as an increase in financial mobility, which translates into individual mobility throughout the life cycle.

Stöberkiste: Network-effects, Esko-Kilpi, Payperks FED Paper,