Better Design of Banking Products Equals Better Banking

Adam Rust

Too much choice can be as detrimental as too little, if not presented in a way that can provide decision-makers with full information in as direct a manner as possible.

I recently attended a conference for companies engaged in trying to build better financial products for traditionally underserved households. Again and again, the presenters focused on the necessity of good
design. Some went so far as to say the product was secondary to design itself – without the right user experience; the customer was unlikely to become a customer regardless of the quality of the service.  

What I enjoyed about the conference was how it brought together groups of people who would otherwise spend their days working in entirely different silos. UX (“user-experience”) designers were mingling with non-profit types who, in turn, by sharing ideas with bankers and regulators.

Underlying the conversation were some recent reports that underscored how many Americans continue to live on the margins of financial disaster. In the previous week, the Federal Reserve had provided an update of its periodic review of consumer finances. Their analysis found that . It was a portrait of a country living with too much month at the end of the paycheck.

The designers were the thought leaders of the week.

"Design determines the outcome of the product. We are all designers, and we are all being designed. Whatever is in the box won’t
get opened unless you have the right box in the first place."

The attention on using good design was especially vital given what we know about the decision-making of lower-income consumers.

While research generally finds that upper-income consumers are unfazed when they must evaluate the pros and cons of making a significant expenditure, the same is not right for people living under financial strain. When liquidity constraints do not exist, decisions become simpler. It’s not a question of “will the value of what I can’t pay for this month be worth the benefit of this cost,” but only “ is this a net win for my future cash flows?” Upper-income people can pay for next week’s daycare and also for new tires. However, for lower-income people, it’s one or the other. If they can’t find a place to put their children while they work, then they can’t work. However, if they can’t find a way to get to work, they also can’t work. Complicated!

More impoverished individuals, when faced with a $500 expense, actually demonstrated a decline in the total cognitive power to make decisions not just about the repair but also in other parts of
their lives. If that seems like it lacks credibility, consider how hard the decision would be for you if several options would prevent you from working for a week.

Financial stress equals cognitive disability. The researchers put it this way: “Put simply, evoking financial concerns has a comparable with losing a full night of sleep.” To test that hypothesis, the researchers posed a set of questions to the lower-income consumers. Their cognitive abilities deteriorated after they were faced with the car repair decision. It is as if their poverty puts a limit on their decision-making bandwidth.

Well-Designed User Experiences
Picture of card
user experience in the design of bank accounts

Enter choice architecture – the integration of behavioral economics and UX design. A design approach designed to enhance the user experience for making decisions, choice architecture theory says that services to low-income consumers should be designed and then judged for their ability to increase the uptake.

That complexity would undermine uptake is consistent with what we know about the relationship between income and the utilization of newspapers and magazines. Lower-income households are far less likely to access public affairs content from print but far more likely to watch daytime talk shows. In turn, they are less likely to draw from the benefits of complete information to empower their decision-making. For example, that rates at which consumers register to vote and then subsequently vote correlate strongly with household income.

Providers of sub-optimal solutions understand the power of simplicity. For example, while federal student loan applications provide fully transparent disclosure information, the FAFSA’s difficulty makes a difference in their utilization. By contrast, student loan lead generation sites can connect a potential applicant with a human in moments – the process of such a loan application is made as comfortable as possible. The GAO found that many of those customer service representations made false statements about accreditation, graduation rates, program costs, and employment of past graduates.

The hard part is that a simpler UX shouldn’t come at the expense of providing consumers with the right information. Consumers make better decisions when they understand the costs of a product. It is just that too much information, presented in a way that is difficult to understand, can overwhelm people.

Research on payday lending bears that out: interest in the use of payday loans declines when people have information about the cost of alternatives like credit cards. Similar findings have been made about the impact of more information when borrowers contemplate using a subprime mortgage loan. 

The market is full of examples of how financial companies choose to make things simpler without providing complete information. Celebrity endorsements are common – and they often come with the overlay of race or gender – in the marketing of payday loans and high-cost prepaid debit cards.

In this work, I can see how design impacts our goals. WiseWage’s core goal is to introduce workers to bank accounts. We want them to take the first step in building their financial future. Getting a bank account that won’t hurt them with overdraft fees sets them up for success. It also gives them the ability to use direct deposit. With the ability to send and receive money electronically, they can get their pay earlier and avoid paying check cashing fees. Those are some of our goals. However, we realize that result only if consumers can navigate from applying for an account all the way through to make a direct deposit of their wages. Along the way, they have to complete an application, activate the card, and bring their account details to their employer. To the extent that mobile apps can smooth the process of doing that, our “product” is successful. Our business proves the truth that design is the product.

An Example: CalFresh

California’s SNAP (food stamps) application was 13 pages back in 2006. Today, it runs on for 18 pages.  

The following items are needed to get CalFresh benefits:

Government-issued ID

Lease or current utility bill

Social Security number (for citizens) or documents demonstrating law immigration status (for non-citizens)

Bank statements for all people in the household.

All records of earned income from the last 30 days, or if self-employed, income and expense records

More proof must be provided to receive full benefits:

Housing costs (rent receipts, property taxes, insurance)

Phone/utility bills

Medical expenses for seniors or disabled applicants

Child and adult care costs

Child support receipts

The CalFresh example underscores the difficulties it takes to navigate our system of social services. Spending so much time on means testing requires a substantial labor force. County governments spend a lot of money to distribute federal, state, and local benefits. The universal basic income approach, currently espoused most effectively by Andrew Yang, would end the need for our government agencies to deploy so much to effect the process of providing relief to the poor.

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