The future of Financial Services

Powerful forces are reshaping the Financial Services industry. Customer expectations, technological capabilities, regulatory requirements, demographics and economics are together creating an imperative to change. Most players are innovating and experimenting with new products, delivery channels and analytics through Digital Transformation. Each financial institution will have a unique response, depending on its current position, aspirations for the future, desires customer focus, organizational capabilities, brand promise and capital constraints.

While all financial institutions are busy transforming their services through Digital Transformation, they should step back for a second and ask themselves a question: What do people really want from financial institutions? More importantly, what do people want from money?

It’s a question that can be answered with many complex responses but I would argue people want happiness from money. Money shouldn’t cause us sleepless nights, fights at home, anxiety, panic, distress, jealousy or envy. Money should help us to improve our well-being. And this is exactly where the problem lies: All stakeholder in the financial industry have translated this need to be happy into the desire to have more money. More money equals more happiness. Either they help us grow our asset size or they give us access to financial resources that allow us to buy more stuff.

This is the basic assumption the whole Financial Services Industry labors under: make money grow and provide access to more money, and people will be happy. But the subject of money and happiness plus our complex human nature makes this matter much more complicated than the basic assumption. To reach happiness around money is a road filled with side streets, exits to nowhere and hidden traps. Here are just a few starting points to contemplate:

• Incomes above $105,000, according to research is the point at which greater household income in the US is not associated with greater happiness. The technical term for this cutoff is the income “satiation point.” Does that mean that if you already make $120,000, you wouldn’t be happier with a $30,000 raise?

  Not at all. Research suggests that the average person who makes $150,000 is no happier than the average person who makes $120,000. But it could be that the sort of person who makes $120,000 is different in some fundamental way from the sort of person who makes $150,000. Perhaps, the people who make $150,000 would be less happy if they made $120,000, so their satiation point is higher than the sort of person who is happy with $120,000 and doesn’t want for anything more.

• How happy our money makes us isn’t just a question of the amount we have; it partly depends on how we have made it. The more pleasurable the process of accumulation, the less substantial the overall sum might need to be (and vice versa).
• We are working so hard to provide for our families but what is the level of support we should give to our children? Giving them a certain amount might have bad side-effects such as laziness or turning them into spoiled brats.
• Anxiety is our constant companion and channeling it towards money a typical human response. We exhaust ourselves in the search for money and are not sure if it really helps us to feel stable and fulfilling our hopes and needs.
• How much money we need can be very flexible, it depends on our reference points. To feel comfortable and safe in our money situation depends on where we live, who our friends are and our life aspirations. Everybody has different benchmarks and environments but we don’t reflect enough on these important markers.
• Spending money can provide happiness but which are the temptations that make us really happy and content and which are the ones that feel like the aftermath of a full bag of chips? One has to be a fairly reflective person to understand how to best spend.
• We want to spread goodness throughout the world and give money to causes that are dear to our heart. But where can we make a real difference and which difference makes us really happy?

There’s no doubt: Future Financial Services Institutions will keep money safe, grow it and provide access to additional funds. But they will also understand there’s more to happiness and money than just a 3.5% rate and good rewards. They will help their customers to understand better what role money plays in their lives, how money makes them happy, what can be done to achieve a content lifestyle. They will be financial experts and guides in understanding our own psychology of money.