Market Overview

Engaging Consumers On Financial Wellness With Artificial Intelligence


Most people haven’t studied finance or taken a course in personal financial management. They may have a basic understanding of the financial products they need to conduct daily life and, possibly, to save for the future. But unless they’re wealthy, it’s likely they haven’t gone over their finances in depth with a financial advisor. 

Amidst the COVID-19 pandemic, it’s become especially difficult to visit a brick-and-mortar bank or stay on hold for hours to speak to an advisor. In today’s reality, people are not having serious conversations with a banker in a branch – if they visit one at all.

So how do people find helpful information on the right types of accounts to open, goals to set, and habits to form? For many, it’s a combination of advertisements, suggestions from friends, and ad hoc decisions made without guidance. And while not everyone has the income opportunity to become financially stable, most people would have better financial health if they had more clarity on what steps to take and when to take them. 

What Is Financial Health?

We define financial health as the strength of a person’s financial holdings and habits relative to their income and lifestyle. In other words, how stable they are today and how their habits are contributing (or detracting from) that stability. 

How Americans Are Doing

Source: KapitalWise

We believe that financial health should be examined like physical health: vitals (assets, debt, insurance) should be measured, and habits (saving, spending) should be taken into account.

Financial health is also relative to a person’s peer group in terms of income and lifestyle. Someone making $40,000 can be relatively healthy if they have enough savings, spend less than they make, and could weather a financial emergency. On the other hand, someone earning $150,000 a year but spending beyond their means and with significant debt may be relatively unhealthy.

The Role Of Banks

There was a time when banks were revered as institutions that provided not only secure storage of money but also professional financial advice. But the relationship banking model, where a banker understands each customer’s situation and needs, has largely been replaced with commoditized products that are sold and serviced through a variety of channels. 

In other words, personalized touch and contextual financial advice has been replaced by impersonality and generalized statements. And when paired with the reputational hit from the 2008 financial crisis, banks are less often seen as a trusted source of advice and planning. 

This has created a huge opportunity. 

We believe financial institutions can reclaim their reputations as trusted advocates for their customers’ financial well-being through AI-driven and tech-focused strategies. This way of engaging with customers yields better outcomes for both banks and individuals. 

How do customers feel about managing their money?

Source: KapitalWise

What Are The Benefits Of AI In Banking?

Artificial intelligence is disrupting the financial services industry by redefining the relationship between banks and their customers. 

Traditional banking had you schedule appointments or walk-ins to branches in the area. Digital banking allows you to receive financial advice and information through the phone or online chat. Now, AI and machine learning in banking are removing repetitive scheduling and waiting. 

With online chatbot support (like Erica from Bank of America), consumers are able to receive automated, yet accurate, responses to their questions. No more waiting on hold, waiting in line at a branch office, or waiting for a representative to email back. 

This form of communication is not only preferred by younger generations that were raised on digital communication, but it comes at a lower cost to the bank as well. 

Banks that implement artificial intelligence into their banking technology can adopt software that recommends the best financial plans at a given place and time based on one’s current financial standing and their spending history. AI can also identify a person’s financial wellness to deliver personalized customer engagement and create meaningful relationships. 

New apps have already started to fill this gap. Budgeting, micro-savings, and robo-advisory apps are just a few of the trends we’ve seen as consumers increasingly trust tech companies to help them build financial security. 

Banks, for the most part, have lagged in rolling out engaging technology to compete with the startups. As a result, their customers spend less time in their bank’s channels, and more time becoming loyal to another brand.

Thinking Across Segments

But just because banks have lagged behind when it comes to creating modern tech-driven solutions, doesn’t mean they’ve missed the boat. There is still an opportunity for banks to serve customers in this way because everyone needs help in understanding their financial health—regardless of age. 

Millennials are actively seeking financial advice and need help building credit, saving, and managing finances. Business owners are looking for financial education for employees. Baby  Boomers and seniors are concerned about income protection. 

Financial institutions that value relationship banking will be the most beneficial for consumers. This strategy removes the impersonality of traditional banking and builds meaningful relationships with every client. Recent technologies like Charles Schwab (NYSE: SCHW) Intelligent Portfolios and Envestnet Yodlee’s AI FinCheck now use AI-driven software to create personalized recommendations and examine an individual’s financial well-being.

For customers who are living paycheck to paycheck, or perhaps just starting their careers, small actions can have a huge impact. Setting a modest savings goal and uncovering opportunities to pay down high-cost debt faster can lead to a long-term shift toward financial security. 

Customers at the other end of the spectrum can focus on other goals, such as how the diversity of their assets can improve the likelihood of generational wealth preservation.

The bottom line is this: a solid financial wellness program should anticipate the needs of customers at every level of wealth and at every step of their financial journey.

Measuring Financial Wellness

The cornerstone of a financial wellness program is the ability to score a customer’s financial health against a range of criteria and benchmark them against their peers. 

Knowing that you won’t have every piece of data about your customer’s finances, KapitalWise takes an iterative approach to build a score. As the customer gives you more information, the score’s accuracy improves, and more actions can be unlocked.

Source: KapitalWise

We believe that to be financially healthy, a consumer should be able to weather multiple possible future scenarios. Our algorithms are capable of testing millions of different financial and life scenarios using our custom Monte Carlo simulations to predict the probability of a future financial insecurity. Our algorithm includes current earnings, spending patterns, debt-to-income ratio, savings coverage of average expenses, credit score, retirement fund forecast, and insurance coverage.

The individual is then benchmarked against their peers based on income level and cost of living. The score itself is represented as a scale from 40-100 and is also used to identify the actions that could be taken that would have the most positive impact on the score. 

The score—what we call the FinWell score— can then be used by a bank’s relationship managers to help a customer develop a plan to address any gaps and improve the score over time. 

In a digital consumer experience, recommendations on how to improve the score can be displayed in a mobile or online banking experience, with the option to nudge customers toward changes that will improve their standing over time

Long-Term Planning Vs Seizing The Moment

A robust financial wellness program should help customers understand the value of long-term planning for their financial future. By providing a financial wellness score, a bank is taking the first step in a conversation to help its customers plot a long-term plan. The score can be paired with financial literacy information that is tailored to the opportunities the individual has to improve their financial well-being.

Having a plan doesn’t guarantee success, however. In our busy lives, it’s easy to forget about a goal you’ve set or when to take the next step to secure your financial future. The best way to help customers achieve goals is to nudge them—at the right time—with a friendly reminder. The KapitalWise platform continuously analyzes the customer’s checking account and notices anytime there’s a surplus of cash that could be contributed to a savings or investing goal or be used to pay down a loan. By sending a customer a notification at that moment, you ensure that there’s an opportunity to make progress before a goal is forgotten and the money is spent elsewhere.

The Customer’s Success Is The Financial Institution’s Success

This type of model is not only a win for the consumer but a win for banks as well. Banks and their clients should be seen as equals in order for both sides to benefit because banks that focus on relationship banking across financial wellness and literacy have higher retention rates.

With a more engaged, loyal client base, banks will see higher retention numbers and can spend less time and money battling customer churn. Most importantly, by helping customers grow their financial success, the bank has more opportunities to cross-sell to a base that is also growing in affluence. This creates more profitable relationships and directly drives revenue for the institution.

Every bank and credit union should care about the financial health of their customers. The best ones will use AI-driven technologies to make it a pillar of their strategy.

Sajil Koroth is the founder and CEO of KapitalWise



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