Guaranteeing that consumers receive accurate and understandable financial information is top of mind — for regulators, advocates and many in the financial services industry. And rightly so.
Certainly, some portion of the Americans who find themselves in dire economic straits today could have avoided their predicament if they had received good financial advice, or had better understood their financial needs and the products that they were relying on to meet those needs. It is appropriate that we now demand greater simplicity and transparency in the descriptions of the fees, terms and conditions of financial products. Our financial lives have simply become more complex, and disclosure is, after all, the centerpiece of U.S. financial services regulation.
Nonetheless, many of the ways that we provide consumers with financial information today require more than a simple fix. Some of them need to be scrapped altogether and replaced with modern solutions.
Modernizing financial communication to enable the same always-on, real-time, two-way engagement that we now expect as a matter of course — from our news, our work, our shopping and our friends and family — represents a tremendous opportunity for financial institutions to deepen their relationships with their customers.
This is particularly true for those financial institutions serving underbanked consumers, who have little access to personalized financial advice and a great need for real-time financial management.
Think of it as financial communication v2.0.
Traditional monthly paper financial statements, for example, simply don't give consumers what they need to manage their financial lives day to day.
The information they provide is static, presents a snapshot of one account at a time and is received a month after many transactions have been completed — far too late to be incorporated into daily household spending and budgeting decisions.
Compare that with a more useful, modern experience with financial information: As I head out of my house to go grocery shopping, I check my account balance using my bank's iPhone application. Discovering that my checking account balance is low, I transfer money from my savings account to my checking account so that I don't risk an overdraft transaction when I use my debit card.
Financial communication v2.0 must meet three basic criteria to create meaningful change in people's lives: it needs to be timely, relevant and actionable.
In other words, financial communication should help consumers obtain the information that they need at the moment that they need it. It should be integrated into every transaction and every customer interaction, so that consumers have the skills and support to put financial advice into action.
Though this will require a substantial shift in how many institutions engage with their customers, there are several promising innovations in the marketplace meeting these criteria.
The leading prepaid debit card providers, for example, have been at the forefront of using text messages to engage with their cardholders.
General-purpose, reloadable, prepaid card companies typically provide cardholders with paper statements only upon request, rather than sending them automatically.
According to one large card provider, less than one-half of 1% of cardholders exercise that option — even though it is free.
However, according to the Center for Financial Services Innovation's research, prepaid cardholders report high satisfaction with alerts sent by e-mail or text message after every transaction, updating them in real time on their current available balance.
Some banks now offer similar features, enabling real-time bank and credit account management.
How about taking this idea one step further by incorporating financial advice into account status alerts? Or by making the text or e-mail conversation more interactive and collaborative?
Mint.com, an online budgeting tool from Mint Software Inc., is striving to do exactly that. Mint.com aggregates financial information for individuals using its service, offering reminders and advice based on personal financial details and goals.
In less than a year, over 1 million individuals have signed up to use Mint.com's service — a powerful reflection of the market power of this idea.
According to recent research conducted by the Federal Reserve Board, about 50% of low- and moderate-income households have Internet access at home, and this number is growing fast. Nearly 90% of middle- and upper-income households have Internet access at home. As online financial services grow in importance for all Americans, the opportunity to make remote financial communication robust and collaborative will only expand.
That said, we shouldn't discount the opportunity to improve in-person financial communication as well.
For example, KeyCorp's KeyBank uses real-time and historical information to track the check-cashing behavior of its customers. When an individual who does not have a KeyBank account has cashed multiple checks at the bank, the teller receives a prompt to offer information about the benefits of opening a checking or savings account, including direct deposit, convenience and personalized information about the savings the individual would generate by doing so.
Thus, the financial information being provided is timely, relevant and actionable.
It can be the launchpad for a conversation with the customer.
As we chart a course out of the financial crisis, we should ensure that consumers have the information and skills that they need to recover financially. Financial institutions that engage in true financial communication will accomplish this goal while realizing a tremendous opportunity to strengthen their relationships with their customers.