Keys to aligning banking and customer interests in the United States
U.S. banks have a decisive role to play in minimizing their customers’ growing financial uncertainty. The time has come for the banking industry in the United States to become more involved in improving the financial health of its customers. This is one of the main conclusions set forth in the study “Making Outcomes Matter: An immodest Proposal for a New Consumer Financial Regulatory Paradigm” by researchers Todd H. Baker (Richard Paul Richman Center for Business, Law and Public Policy) and Corey Stone (Financial Health Network).
Even before the COVID-19 crisis, experts had already identified economic warning signs, as the report, “U.S. Financial Health Pulse 2019” published by Financial Health Network reveals. “In 2019, 29 percent of Americans were financially healthy, just one point higher than a year ago,” the document that predicted the impact of a possible crisis on family finances explained. “There are signs that many people are more vulnerable than they were a year ago. This is cause for concern, as speculation grows that the economic expansion may end soon”.
These predictions have come to pass. In a context of growing financial vulnerability, now exacerbated by a global pandemic, Baker and Stone's study emphasizes the critical role of the financial sector, which, now more than ever, must offer products and services designed to improve their customers’ financial health. In practice, however, this is not always the case. According to the report, “each supplier optimizes its consumer relationships based on profitability”. Thus, when faced with economic distress, customs who are pressured could make quick financial decisions that would be beneficial to the provider but that could lead to “suboptimal outcomes for all consumers and high levels of financial insecurity among the most vulnerable populations.”
Technology solutions
Despite legislative efforts to protect the American general public and their finances, it is true that, as per the report, there is still room for improvement in “advancing the interests of consumers, particularly more vulnerable lower-income consumers.” The fundamental cause of these unsatisfactory outcomes stems from a lack of data and information about the results of product usage.
Fortunately, the situation is changing thanks to the emergence of new technologies and big data, which facilitates the analysis of the financial services impact on the population. According to the report, access to new metrics and data could result in “generating an empirical basis for identifying harms and benefits correlated with particular practices or product features.” It would therefore be possible to define policies that would permit a mutually beneficial relationship between financial service providers and customers.
Innovations in the financial services field are increasingly leading to solutions that take greater care of the customers’ financial health. U.S. organizations like the Financial Health Network are working to establish financial health measurement systems such as those that track whether people spend less than they earn, pay their bills on time, plan ahead to cover expenses and have enough long-term, liquid savings, keep a sustainable debt burden in order to have access to affordable loans, and have appropriate insurance coverage.
In BBVA’s case, the effective use of big data, coupled with the available customer information, has led to the creation of opportunities through products and processes that are aligned with customer interests. Furthermore, the deployment of new technologies has fed into the optimization of the bank's services, something that helps people improve their financial health and make better decisions.
In the context of the current crisis, the bank has reinforced the importance and value of data for performing detailed diagnostics of the situation and its consequences. BBVA Research provides a good example with its real time analysis of the impact of COVID-19 on credit and debit card usage or on the consumption in Peru. Its work has contributed to the quantification of the crisis’ impact leading to a focused approach for response and prevention efforts. In Spain, the study of the evolution of card spending has made it possible to quantify the consumption in the country. This exemplifies how data can be used to enable faster responses and real-time diagnostics for planning the most appropriate strategies in support of people.