If you want to know exactly what you are spending your money on, want to save money automatically without really thinking about it, or introduce rules to help you control and curb spending habits, the services offered by today’s Financial Services providers enable you to do these things – and much more.

However, do all these products, services and features have a positive impact by helping improve a consumer’s financial wellbeing or are they just gimmicks, developed with a simple commercial objective in mind?

Before answering that question – let’s take a step back and explore what we mean by financial wellbeing.

One of the core objectives of the newly formed Money and Pensions Service (MaPS), established in April 2019 through the amalgamation of The Money Advice Service, The Pensions Advisory Service and Pension Wise, is to improve financial capability and wellbeing. Indeed, this week (18-22 November) is Talk Money Talk Pensions week –  the goal of which is to turn talking about money from one of the UK’s least favourite topics into something commonplace.

The reason for this is because financial capability and wellbeing is a significant issue within the UK, with the latest Money and Pensions Service (MaPS) research showing:

  • 9M people are struggling with debt
  • 5M people do not have even £100 in savings; and
  • 17M feel nothing they do will make a difference to their financial situation; and
  • 24M do not feel comfortable making final decisions

The new products and services described above certainly appear to address financial capability issues, through encouraging engagement and better money management. However, to better understand whether the extent to which products and services offered by financial service providers to align with improving financial capability MaPS commissioned us to undertake research with retail banks.

Our research sought to explore financial service providers’ understanding of financial capability and how – or if – is it embedded into the design of products, services and features. We spoke to 42 participants from 19 retail banking service providers, including traditional players and some of the new fintech providers, focusing on current and savings accounts. Participants were from a range of different roles but mainly senior managers or directors within product development, communications or marketing roles.

The reality is that the majority of the providers we spoke to have some understanding of what is meant by financial capability, although it rarely aligned completely with the full definition adopted by MaPS.

They define financial capability as “the ability to manage money well – both day-to-day and through significant life events”. As well as themes around better decision making and resilience, issues around vulnerability and inclusion were also referenced.

With apparent inconsistencies in understanding, it is perhaps not surprising that improving financial capability was not an explicit driver of product and service development within retail banking but was often perceived to be a by-product of adhering to the providers’ ethos of putting the needs of the customer first.

We might not think of our product development in terms of financial capability per se…the products we offer should be sufficiently transparent and easy enough to use that they take care of financial capability. [For me] financial capability is a subset of what we should be doing every single day, which is helping customers make the most out of their money.

Major bank / building society

We often hear about financial providers, aiming to put their “customers at the heart of the business” but in our view they really need to go further than that. While customer focused product development is vital, the best way to demonstrate this is to consider – and measure – the impact they are having on their customers’ financial capability and wellbeing. Providers should be demonstrating that the financial capability of their customers is high on their agenda and, more importantly, providing evidence that their products and services are having a positive impact on this – which it appears is the ‘missing link’ for many providers.

In our study, none of the providers had sought to define and quantify the specific commercial benefits for improving customers’ financial capability, but there was a recognition that improving the financial capability of customers can bring a commercial value for retail banks.

Thinking back to our initial question – are products and services improving financial capability and wellbeing or are they simply gimmicks for commercial benefit? The answer is much more nuanced.  These products and services do undoubtedly help people engage with their finances and the evidence suggests they are being designed with customers’ interests at heart.

However, it is critically important that financial services providers are able to measure and evaluate the impact they are having on customer behaviour, and subsequently the business benefit this brings. This will advantage from both a social and commercial perspective.

Written by Alistair Kuechel, Research Director in our Financial Services team

Alistair Kuechel