Why do so many financial services brands still misunderstand their customers?

Si Elliott is a strategic marketing leader, award winning educator and customer experience expert with over 20 years of experience helping brands build deeper, more meaningful connections and relationships. He is the founder of Fabricx, a consultancy specialising in applying behavioural science to customer experiences and relationships, and author of Customer Experience Thinking.

For most of the twentieth century, economics operated on a foundational assumption that people are rational. Given sufficient information, individuals will weigh their options, calculate the optimal outcome, and act accordingly. This model, described by Richard Thaler in his excellent book, Misbehaving, is known as Homo Economicus (i). A perfectly logical decision-maker, that has shaped financial regulation, product design, and most marketing strategies for decades.

There is just one problem with this assumption. Homo Economicus doesn’t exist in the real world, we’re beautifully irrational Homo Sapiens.

Behavioural economics, pioneered by Daniel Kahneman and Amos Tversky, tells us this very different story. People are not rational calculators. We are emotional, context-dependent, and heavily influenced by biases and factors classical economics would consider irrelevant. Things like how a choice is framed, what they experienced just before making a decision, whether a process felt effortful, and whether an outcome might represent a loss rather than a gain.

Therefore, if your customer communications and journeys are built on the assumption that customers respond primarily to information and logic, you are probably designing for a human being that does not exist. And you are leaving conversion, trust and most notably loyalty on the table as a result.

The anxiety problem

Financial decisions are inherently high-stakes. Whether someone is applying for a mortgage, switching current accounts, or trying to make sense of a pension statement, the emotional context is one of risk and uncertainty before a single word of your copy has been read.

Behavioural science identifies Loss Aversion as one of the most powerful forces in human decision-making. Kahneman’s research suggested the pain of losing something is roughly twice as powerful as the pleasure of an equivalent gain. This means your customers are not primarily asking “what might I gain?” They are asking “what might I get wrong? What am I risking by proceeding?”

Another behavioural bias that is closely related is the Scarcity Effect. This can be extremely impactful at the point of conversion, as Trainline and RyanAir will have tried to use to nudge you with on every visit (only 3 seats left!). However, when used carelessly, urgency-based messaging amplifies anxiety that financial customers are already carrying.

Consider for a moment the average onboarding journey. Long forms. Unfamiliar terminology. Progress bars that underestimate the time remaining. These are not simply usability problems, through a behavioural lens, they are active generators of customer anxiety. And as anxiety rises, customers abandon.

A core customer experience principles is to minimise effort and stress. In financial services, this is routinely violated, often because internal process have been mapped onto customer journeys without considering what that process feels like from the outside. Of course some elements are unavoidable, but a great deal of the friction in financial services is legacy procedure rather than legal necessity. When customers cannot tell the difference, they simply experience too much effort and draw their own conclusions on whether to continue.

Bridging the trust gap

Trust is not a brand attribute in financial services, deep down it’s essential to the product. Every interaction, every piece of communication, every moment of friction or reassurance either builds it or erodes it.

Consider Priming, which is the way early impressions shape how everything that follows is interpreted. The first communication a new customer receives, the first screen in your app, the first interaction with your team, all prime the emotional register through which the rest of the relationship is filtered. First impressions in financial services really do count.

It also connects to a second customer experience principle, set, manage, and exceed expectations. Customers in financial services often do not know what a good experience looks like because in many cases it’s an extremely infrequent transaction, or the first time ever. Setting honest expectations at every stage and consistently meeting them is a more powerful differentiator than most marketing teams recognise, and builds that ever-elusive trust.

A great behavioural bias to elevate the experience is the Peak-End Rule. This tells us that people judge an experience not by averaging all its moments, but by how it felt at its most intense point and how it ended. A largely smooth journey can be undone by a single moment of confusion, particularly at the end of the process. This is why we have to plan clearly for optimising all stages, but really focusing on a peak and the end of the experience. Get these right and the positive memorability of the customer experience multiplies.

The influence of framing

How a choice is presented can change the choice that is made, often dramatically. Framing affects financial customers at every stage. A fee described as “a small monthly cost” lands differently to the same fee expressed annually. A savings rate framed as “earn up to 4.5%” creates a different emotional response to “do not lose ground to inflation.” Neither is dishonest, both are choices with measurable consequences for behaviour.

Anchoring operates similarly, this describes how the first number a customer sees becomes the reference point against which everything else is judged. The order in which products or options are presented is not a neutral design decision. It is a choice architecture and a behavioural intervention, whether you intend it to be or not.

It brings in a third customer experience principle, personalise for the individual. Framing that reassures an anxious first-time buyer may feel patronising to a confident, financially literate investor. Segmenting by likely emotional state and decision-making context, not just demographics or product interest, is where behavioural thinking creates genuinely differentiated marketing.

Connecting starts with understanding

We now have to think much deeper, and invest in building relationships with our customers. The average customer is more demanding than ever, more overloaded and also more distracted. With over 95% of decision-making being made by the subconscious mind, the financial services brands getting this right are designing journeys that account for customer’s emotional state and behavioural biases, not just informational needs.

Investing time to understand how customers actually think is a genuine competitive advantage. The organisations that build lasting loyalty in financial services will be those that treat behavioural science not as a marketing tactic, but as a design philosophy.

i) Thaler, R.H., 2015. Misbehaving: The Making of Behavioral Economics. New York: W.W. Norton & Company.