What is behavioural economics, and how are we seeing it in action? Story by Benedict Shegog and Tom Evans of 11:FS.

Behavioural economics has been having a good few years. It’s a topic that’s won multiple Nobel prizes, saved the UK taxpayer hundreds of millions of pounds, and is rapidly becoming one of the tools used by the best product and policy designers around the world.

What is behavioural economics? Put simply, it’s a mix of psychology and economics; a framework to explain why small changes to design and communications can ‘nudge’ people into different behaviours. It’s a way to combat the imperfect decisions, the ‘biases and blunders’ that economist Richard Thaler sees us all as making on a daily basis.

Behavioural economics is perhaps best known for being the main focus of the British government’s infamous (at least in some circles) Behavioural Insights Team. Otherwise known as the Nudge Unit, the tiny team with an even smaller budget that has been testing out a wide range of tweaks to government policy and communications with an aim to positively shape or change the behaviour of UK citizens for the benefit of themselves (and in the case increasing organ donation, the benefit of others). The changes they’ve achieved range from increasing collection rates for late taxes by 4% (by simply adjusting the URL in a letter) to saving the UK courts £30m a year by sending SMS messages to people who owe fines, and (based on Nobel prize winning Thaler’s research) helping ensure that entire generations will be better off in future through auto-enrolment and smart defaults for workplace pensions.

So why is 11:FS interested in behavioural economics?

We believe that the ‘liberal paternalism’ and ‘choice architecture’ forwarded by Thaler and other behavioural economists are immensely important for helping people manage their money better, and therefore by extension, the design of digital financial experiences. In our current age of the ‘attention economy’, it has never been more important to have a thorough understanding of user inertia, sensible defaults, imperfect will power, fear of loss, positive reinforcement schedules, mental accounting biases (and many more) if you want to genuinely help people manage their finances better.

The app designers that are taking these topics into account (either consciously or subconsciously) are already building more engaging and effective financial products. Apps with auto-categorised PFM functionality such as Starling, Monzo, Yolt and HelloWallet (among others) are building a foundation and transparency from which they could later help nudge users towards better financial behaviour, through timely and relevant nudges. While others such as Acorns and Moneybox have addressed the issue of inertia, providing spending ‘roundup’ tools that help people automatically save and invest. Soon you might even be able to auto-invest your spare change in cryptocurrency (what a brave new world we’re living in!).

Starling’s Goals

Most recently, we’ve seen UK challenger bank Starling launch a Goals feature. We talked to product director, Ben Chisell, who defined and delivered the Goals feature, about how the bank is helping users make better decisions.

“We launched the spending analytics feature in June to give people visibility into spending in order to stimulate behavioural changes,” he said. “Personally, for me this came with some surprises. I began to notice when I took an Uber home four times in a row. That’s £80 that would be better spent elsewhere. The problem is that good intentions aren’t enough. They die down over time. The famous example is the wave of post-New-Year’s-resolution gym memberships that go unused. What customers really need is something to aim for at the end of the tunnel. When the temptation to jump in an Uber comes along, you should be reminded about a holiday you’re trying to save for. For the Starling team, there was a very natural progression from spending analysis towards goals.”

Starling Goals. Gif by 11:FSWith Goals, Starling lets users establish savings targets for anything they want to work towards. Setting up the Goal takes a matter of seconds (none of your clunky web interfaces here), and users can set up regular or one-time transfers into the savings pot. There’s plenty here that economists like Thaler would like:

  1. The Goal creation process is entirely friction-free: The Starling team consciously hides away all of the Goal configuration options in a menu, which reduces the setup time to a matter of seconds. Product designers should do everything they can to make the first step as easy as possible. The majority of users won’t ever need to make changes to the configuration, so why force them to go through all the steps?
  2. The ability to set your future self tasks: Most people are lazy and try to avoid loss in the short-term despite having the best of intentions for the long-term. By enabling people to set up future transfers, Starling lets people lock their future selves into a commitment. Sure, some people will stop the regular transfer, but many people will stick to their commitments.

Starling has big plans for the app going forward. The team sees spending analysis and goals as two sides of the same coin. In the not too distant future, it’s easy to imagine a personal financial assistant that sits on the platform and provides relevant actionable advice and insights. Ben Chisell sees a future where a bot would gently nudge people by providing information such as, “Did you know that in the last month you could have put 5% more towards your New York city break goal if you’d spent less with Uber”.

There’s a tonne of useful insights and tools to unpack from the fields of psychological research and behavioural economics, so we’ll be putting out more posts on the subject in the coming months. Keep an eye out!

AUTHOR: Benedict Shegog is a market research analyst at 11:FS, and Tom Evans is director of user experience. To find out more about 11:FS Pulse, visit the website.

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– This article is reproduced with kind permission. Some minor changes may have been made to the text to reflect BankNXT style considerations. See more 11FS content here. Image by DesignPrax, Shutterstock.com

About the author


11:FS is a "digital transformation agency" that believes banking should be about more than selling financial products. It is co-founded by David Brear, Jason Bates, Ross Methven, Meaghan Johnson and Simon Taylor. 11:FS produces FinTech Insider, and provides services such as 11:FS Pulse, 11:FS Ventures and 11:FS Talks.

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