Have you ever wondered why getting something for free feels so good, even if you don't really need it? We all like to think that we make financial choices logically coming to the best decision based on the facts. The reality is far from logical and behavioural economics shows just how predictably irrational we all are when it comes to making financial decisions. This is an area of study which is helping our Debt Managers business connect with customers and provide financial support. Faced with customers who have often been bombarded with communications about their finances, response rates to monthly communications were extremely low, meaning it was difficult to start conversations with customers about how they could tackle their debt. The business turned to The Fairbanking Foundation to see how the power of behavioural economics could help and the results were astounding.
The Fairbanking Foundation is a charity which aims to help banks improve the financial well-being of customers. In order to explore the communication issue the Foundation enlisted the help of Professor Ivo Vlaev, Senior Lecturer in Behavioural Sciences at Warwick Business School, who examined the suite of communications Debt Managers was using.
By using the principles of behavioural economics, The Fairbanking Foundation and Professor Vlaev were able to suggest changes to the communications sent out which would encourage customers to get in touch with Debt Managers. Around 80,000 communications were tested with eight different message types. The results were striking. The most successful option resulted in a whopping 57 per cent increase in customer response and a 100 per cent increase in their commitment to payment plans compared to the standard communications. With the research proving so conclusive the new communications were immediately adopted by the business.
By increasing customer contact, Debt Managers has also been able to identify more vulnerable customers and put them in touch with relevant organisations which can offer them the support they need.
The principles of behavioural economics are being used by businesses across our Group, helping to make sure we treat customers fairly. For instance, we don't offer bonus rates on savings products because 'the power of free' principle tells us that customers would be attracted by these even if they didn't represent a good deal.
There are still plenty more ways that this fascinating area of study can help our businesses and Debt Managers business is continuing to explore a number of new projects with The Fairbanking Foundation.
More information about Debt Managers is available here Debt Managers. To learn more about the work the Fairbanking Foundation does please visit: Fairbanking Foundation