Financial education as market catalyst

One of the assumptions made by many in the post-Fintech world is that banks and other incumbents are engaged in a fight to the death over an already saturated marketplace; that this war for a finite market is a zero-sum game where most end up as losers.

The reality is entirely different. New technologies and design-led, user-friendly applications are already unlocking latent customer needs. But there is one element that has been unforgivably overlooked by both traditional banks and challengers, both on the staff and customer side and that is financial education.

The awarding of the Nobel Prize for Economics to Richard Thaler is richly illustrative and timely. Thaler’s work in the field of behavioural economics has done much to prove the thesis that when it comes to matters financial, human beings are hardwired to fail, and without intervention in the form of education, failure is certain.

From that basis, banks and other providers might purely in their own self-interest mount a regulatory defence by ensuring customers and prospects are adequately informed on their product and services options, to say nothing of the prospects for business. Yet it seems as if providers long ago relinquished that role: the demise of the traditional bank manager who could read a balance sheet and make effective credit decisions can be taken as symptomatic of a more general failure to equip staff with the necessary know-how to service the customer base.

It is too easy to assume developed economies have largely sophisticated consumers capable of optimising financial decisions when in fact most studies find that this is emphatically not the case. To poor financial knowledge must be added a fundamental laziness and lack of initiative on the part of many individuals and indeed businesses.

These assumptions do not hold elsewhere. Governments understand the link between financial literacy and economic prosperity better than banks, it seems, as evidenced by the many initiatives worldwide directed by the World Bank and OECD.

The fact is that financial education is an underused catalyst for the expansion of the banking and financial services marketplace. That holds not just for individuals in emerging markets, but for consumers in developed markets, high net worth individuals, SMEs and corporates. And it’s not just about educating the customer: first educate the staff and the customer will follow. The same holds to industry vendors.

So what does financial education in the age of FinTech look like?

•             Staff may access learning material anytime, anyplace, anyhow (mobile, laptop, desktop)

•             Managers to assign and track staff progress through structured courses and programmes

•             Ability to demonstrate to regulators a structured, verifiable and certifiable approach to training staff

•             Ability to demonstrate to regulators effective customer protection thorough provision of relevant learning material to those customers

•             Ability to provide contextual educational support on operations platforms thereby enhancing their effectiveness