Financial Health: The Opportunity for Financial Service Providers

As we rebuild from the pandemic, we must prioritize the stability and resilience of local economies. Economic resilience starts with ensuring the financial health and wellbeing of individuals, households and small businesses.

The private sector, particularly financial service providers (FSPs), occupy the front lines of local economies. They provide key services, tools, products and capital to help clients weather volatility, save for the future and invest in growth. Although focusing on client financial health might seem like a nice thing to do, it’s actually smart economics.  If FSPs prioritize the financial health of their customers, they will not only increase customer loyalty, but they will build a more robust client base that will lead to longer term sustainability for their businesses.

The Business Case for Financial Health

Over the past year, the Financial Health Working Group, convened by H.M. Queen Máxima of the Netherlands in her capacity as the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), has brought together representatives from financial institutions across the world to discuss the opportunities, challenges and realities of integrating financial health into business operations.

A wide variety of FSPs were represented in these discussions, including banks, mobile network operators, payment facilitators and fintechs. The feedback we gathered was enlightening. Some FSPs were already embedding financial health into their businesses, and they observed that

• Customer profitability improved as financial health improved.
• Client retention and acquisition increased.
• Employees of FSPs felt prouder of their employers which led to increased staff retention.
• Their brand improved among external stakeholders like regulators and policymakers.

They also found that commitment was key. For financial health to make business sense, internal buy-in, especially at senior management level, was critical. 

Institutions who hadn’t yet mainstreamed financial health into their strategies expressed appetite to learn more and advocated for the creation of a financial health playbook that could help accelerate their journey. They also noted that best practices on how to measure the financial health of their clients would be important for consistent adoption throughout the sector.

What does it mean to embed financial health into business operations?

Embedding financial health takes customer-centricity and human centered design to new levels.  It requires the FSP to look beyond the customer journey of a single product. Instead, FSPs must think more holistically about how a portfolio of products and services align, complement and combine to further their clients’ financial wellbeing. The first step in this holistic approach is to establish the baseline; FSPs need to understand the financial health of their customers and identify the gaps.

The Commonwealth Bank of Australia (CBA) worked with the Melbourne Institute, an economic and social policy research center, to develop a set of financial health measurement tools to assess the financial health of its customers. The insights garnered from the tools enabled CBA to develop a suite of products and resources for customers who are facing specific financial health challenges. For example, the Commonwealth Bank app incorporates a host of nudges, goal calculators and budgeting tools to help clients keep their financial goals and wellbeing top of mind. CBA’s work also created positive externalities for the national economy: during COVID-19, CBA’s financial wellbeing surveys enabled the bank and policymakers to track the economic impact of the pandemic on Australia.

ING Bank has also developed products that support financial health across its diverse markets, many of which are based on behavioral research about what works to help people make good financial decisions. These efforts often include financial coaching and counseling, sometimes in partnership with other organizations.

Among the institutions we spoke to, we also encountered companies that took an internal approach to financial health and prioritized the financial health of their employees. There happens to be a strong business case for this approach, too. The UK’s Money and Pensions service found that when employees experience poor financial health, their productivity at work declines. Drawing on this and similar research, PayPal, Just Capital, the Good Jobs Institute and the Financial Health Network created the Worker Financial Wellness Initiative to guide companies in assessing and then supporting the financial health of their workforce.

In summary, we learned that an FSP that supports financial health does the following:

• Shifts corporate orientation and adds financial health as a part of its vision and definition of success.
• Measures customer financial health, disaggregated by segment.
• Invests in new products and services that support customer financial health and/or upgrades existing products and services using behavioral design principles.
• Ensures consumer protections are in place and seeks positive customer outcomes.
• Supports the financial health of its employees.

Toward a global financial health community

While financial health is a concept that has been well-researched and explored in high-income countries, such as the US and Australia, this process is only beginning in low- and middle-income countries.  When we spoke to FSPs in countries like Pakistan, Turkey, Colombia and Ghana, for example, they were less familiar with the concept of financial health and had fewer peers in market to learn from.

FSPs around the world have much to gain from integrating a financial health perspective into their work, but they need support, tools and a community of practice.  No one institution or provider can do it alone. Partnerships and a peer learning network are essential; every FSP we engaged with reiterated this point.

Our call to action is the creation of a global financial health community and a common playbook.  We need to facilitate peer learning and produce tools, frameworks and methodologies that simplify and accelerate the integration of financial health into financial services. It’s only then that we will be able to realize financial health at scale and create more robust and resilient economies.