The (Financial) Doctors Are In
It’s easy to assume that many U.S. consumers, living in one of the world’s strongest economies and having broader access to financial technologies and services, would be the picture of perfect financial health.
But looks can be deceiving.
In fact, study after study has revealed a much different picture of the financial fragility that many people in the U.S. deal with. From living paycheck to paycheck to concerns about having enough money to cover daily expenses, it’s becoming more apparent that these consumers are in need of help when it comes to their financial health.
While many are aware of the financial challenges and difficulties that face the unbanked and underserved populations, often the banked consumers that are struggling with managing their finances are overlooked.
Karen Webster recently hosted a digital discussion with Victoria Dougherty, director of product management for immediate funds at Fiserv; John Thompson, senior vice president at CFSI; and David Pommerehn, senior counsel and vice president of the Consumer Banking Association, to get a pulse on consumer financial health and discuss what tools and resources are needed to spark change.
Thompson defines the financially healthy consumer as someone who has a daily system that is helping them build resilience and pursue opportunity, which can be an assembly of products they use for their finances as well as the financial behaviors they exhibit.
Unfortunately for banks and financial providers, the state of financial health, unlike physical health, isn’t always easy to pinpoint.
While Fiserv’s latest quarterly survey on consumer expectations and experiences revealed that consumers gave themselves and overall financial management ability grade of a B, many said they didn’t feel in control of their finances. Many admitted to feeling lost when doing financial management for their household, especially when it came to things like saving for the future and sticking to a budget.
Boosting The Financial Immune System
Determining the financial health of a consumer can be vary depending on age, income and a variety of other factors. It can also be relative to that consumer’s education, experience and even which day of the week they are being assessing their finances — payday versus when bills are due.
But what CFSI believe isn’t subjective are the measurable indicators that can be provided to the financial ecosystem to better assess what a financially healthy person really looks and behaves like.
“If banks, credit unions and service providers were the doctors and nurses around financial health, we have a set of data to help them make a diagnosis, provide a prescription and see the outcomes,” Thompson explained.
He noted that it’s not just about how consumers feel about their financial health, but the actual actions they are taking (or not taking) related to their financial situations.
According to CFSI’s financial health framework, 57 percent of consumers, over 138 million people, are categorized as “coping” or “vulnerable” on the spectrum, rather than “healthy.” That’s more than twice as many people that would be categorized as underbanked, Thompson noted.
“Financial health is not a destination — it’s not a city you travel to, it’s a constant journey throughout your life. You’re fluctuating up and down and moving through segments depending on what’s happening and the choices that you make,” he said.
While many banks and financial services providers make resources and tools available to their customers related to financial health, Dougherty said that Fiserv’s research shows a trend of consumers being more interested in being a partner with their financial institution (FI) in their overall financial health, rather than just handling it on their own.
“They want a partner in this — they’re looking to their financial institution to be there for them,” she explained. Consumers are relying on FIs to push data to them and not necessarily taking the initiative to do those checks and balances themselves.
Are Banks Equipped To Help?
While banks may have an indication of the resources and tools consumers need, that doesn’t necessarily mean they are able to deliver.
As Pommerehn pointed out, liquidity is an issue consumers across the country are facing, and they are in need of a way to bridge the gaps when trying to make ends meet.
But there’s a tension between regulation and financial services in filling these gaps, which can be seen in how regulators are addressing things like short-term liquidity, overdraft services and small-dollar lending requirements.
Many banks are challenged to provide more real-time services such as deposit acceleration or faster bill payment without impacting their business or cost models.
Dougherty pointed out that FIs have the option to solve for that by outsourcing the risk for accelerating the access to funds, so for now there are actions FIs can take until there is more change in the market.
Still, regulatory complexities can significantly impede a bank’s ability to deliver on the types of solutions that will actually make a difference to consumers while still being able to make money.
Alleviating this pressure on the part of banks, Pommerehn explained, starts with reasonable regulation. Because regulators create overly complex rules that are difficult to comply, he noted that it becomes almost impossible for banks to create solutions that are more tailored to consumer needs.
“One of the biggest roadblocks to FIs right now is that they spend and increasingly disproportionate amount of time on compliance, where I believe it could be simplified, smarter regulation that would allow banks to innovate and partner with innovators in a lot of cases,” Pommerehn said.
These things need to be streamlined and the regulators need to do a better job, in his opinion, of making sure banks can make innovative products to better serve the consumer, rather than spending 70 to 80 percent of their time answering regulator questions on existing products and compliance.
Finding The Cure
The trend of consumers wanting help and wanting to be that partner with FIs for that help, Dougherty explained, means that these providers must answer the call or risk being left behind by their customers.
“You need to address this, or they’re going to move on without you,” she said. “We don’t get a choice at this point; this is the expectation of tomorrow’s consumer that we will be that partner and that we will be providing more inclusive solutions.”
Thompson said it starts with creating solutions that are designed for consumer needs and improving consumer financial health, while also measuring and bring aware of the impact.
More outcomes-based solutions can include automating the savings process or building products that blend savings and spending, which Thompson pointed out can help FIs to also remain aware of the outcomes for consumers using those products.
“As financial institutions, we have a responsibility around not just offering a service, but making sure that the awareness is there and teaching consumers how to use it, because so many great products and services exist yet people don’t know what they are and that they can help,” Dougherty added.
From speeding up P2P payments to check acceleration, Dougherty said there are many solutions Fiserv is bringing to the table for FIs to help fill the gap and keep consumers as financially healthy as possible.
“Consumers need real-time reflection so that they have good information in order to manage their financial health with. Part of it is that we are confusing [consumers] by trying to protect ourselves as an institution, so if we can give them that ability to have everything happen in real time, that’s definitely going to help them feel better about their relationship and endear them to the FI going forward.”