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In our latest report we explain how banks can use behavioral nudges to reach better outcomes for both their customers and themselves. 

Behavioral biases can often prevent customers from taking the best and most beneficial financial decision. The key for banks is to support customers by influencing their financial decision-making. Doing this helps both clients and the banks themselves by reducing complexity and increasing the perception of being on their side at a difficult time, like the existing COVID-19 pandemic.

There are three existing behavioral approaches that should be taken into consideration when helping customers address their financial needs — this includes adjusting the choice architecture, improving information and optimizing products (CIP).

Choice architecture

Many customers are prone to the status quo bias, which means they stick to the default option on offer. In this example, banks need to make informed decisions about the number of choices presented to the customer, the way these choices are presented, and the selected default option.

In addition, banks can also use active choice mechanisms which remove the option of not expressing a preference after a certain deadline. This avoids outcomes that cluster around the default outcome.

Within choice architecture “commitment devices” play a role, describing a commitment to future behavior, whereby customers restrict their future choices by making other behaviors more expensive. An example for such a device could be the commitment to reflect an expected salary increase in a savings plan before coming into effect. In case the savings plan is not changed once the salary level is increased, the bank would charge a penalty, which makes the divergence from the pre-defined commitment expensive.


Financial literacy is correlated to better financial decision making, such as retirement planning, stock market participation, and portfolio diversification. Increasing the financial literacy of customers with interactive and gamification elements can therefore improve decision making.

Giving customers a better and less abstract feeling about risk might increase a shift from saving to investment accounts, helping to strengthen a banks’ commission income in times of low interest rates. In addition, consumers are influenced by the decisions taken by others and mimic the behavior of other people. While positive effects on financial decisions caused by peer information have been proven, the wrong peer group can lead to negative effects. The peer group, therefore, needs to be chosen carefully to avoid adverse effects. For an efficient nudge, simple information paired with educational advice works best for customers.

Product design

Product design can significantly increase or decrease the use of a product. This is often the case with product characteristics connected to greater interaction and individualization that is strongly influenced by behavioral dynamics.

Example features could be virtual accounts, renaming functionalities and personal financial target setting. Multiple banks gradually implement new design features aiming to increase customer engagement by leveraging behavioural dynamics. Also, the way discounts on prices are presented and promoted influences customer choice. Actively promoting a 50% discount on overdraft fees actually reduces overdraft usage by customers. In contrast, not explicitly mentioning cost of overdrafts to customers while being available to them actually increases the use of these overdrafts.

Banks can make use of potential “nudges” across all those three behavioral levers. Experiments with customers of these behavioral nudges have shown significant quantitative effects demonstrating a clear opportunity for banks to explore the application of behavioural techniques in a more targeted way. Banks can benefit from similar experiments to test and learn on different nudges.

To learn more about improving customer decisions in retail banking, download the full report.