How Fintech Organisations Are Leveraging Behavioural Finance
Psychology is an integral part of our existence. How we think, perceive, and react, all comes from our psychic beliefs, depending on how we are wired emotionally. It is the driving force behind the decisions we make every day, and what can be more crucial than the financial framework we choose for ourselves? Or the way we manage our finances every day? Hence wealth-tech institutions like 1finance are re-imagining the construct of personal finance to deliver hyper-personalised recommendations to their potential clients that align well with their core beliefs and personality traits. So, it is no longer the “one size fits all” formula for personal finances and advisory services.
In simple terms, behavioural finance is all about combining principles from psychology and economics to explore how individuals interpret and process a piece of information while making financial decisions. It is a boon for financial advisors who want to go the extra mile in identifying and understanding the needs and objectives of their clients in terms of managing their wealth and optimising their investments. A recent example we can observe is of 1 Finance, how they are implementing their patented assessment tool MoneySign™ can help you navigate your financial decisions with more self-awareness and a greater degree of rationality.
MoneySign™ is a well-researched personality assessment tool from the financial perspective, different individuals have unique approaches to handling their finances, prioritising their expenses, risk appetite, affinity towards varying investment options, etc. Depending upon these factors, MoneySign™ assigns different financial profiles to those undertaking this assessment. Eventually, folks are segregated into different categories, further simplifying the process for financial planners to curate financial strategies for them.
Let us delve further into gaining a broader understanding of how fintech organisations are leveraging this aspect to deliver more compassionate financial services to their clients:
- Using the gamification technique: financial planners are leaving no stone unturned in modifying their platforms to make them super interactive by integrating fun elements like rewards, challenges, and progress trackers. So that users are encouraged to make desired financial decisions by overcoming emotional barriers and can provide immediate feedback and gratification.
- An intuitive interface makes all the difference: Keeping the individual financial personality at the forefront of the user interface with the delivery of necessary information in an easily digestible manner is one of the major USPs of these fintech companies. Because it empowers users to make informed financial decisions, prevents decision paralysis, and reduces the cognitive load.
- Mitigating behavioural biases: there are different behavioural biases concerning the financial landscape, such as mental accounting, confirmation bias, anchoring, herd mentality, etc. The availability of educational resources and interactive tools on these fintech platforms helps people let go of their biases and preconceived notions, helping them make calculated decisions.
- Inculcating financially healthy habits: with the feature of automated savings and investment, fintech organisations are helping their clients take one step at a time with regular savings through round-up savings. Similarly, other features like automated contributions and automatic portfolio rebalancing help users work towards their financial goals.
- Imparting financial literacy: To bring change, we must be part of it. Fintech companies with this core belief are providing an ample amount of educational information on their platforms. This is enough to let people get well-versed with typical financial entities like budgeting, saving, and investing that can help in long-term goals like retirement planning, liability management, etc.
Emotional and cognitive biases are inevitable while we make financial decisions. Knowing them in advance helps our financial advisors to guide us with a sound financial plan that leads us to financial freedom and well-being.