The psychology behind COCO{Auto-savings}: How behavioral finance is changing the game

Due to behavioral economics, which combines principles of psychology and economics, it is easier to understand why we make the decisions we do in terms of finance. One of the key ideas in this field is that our behavior is – often – irrational, and that people tend to make decisions that do not benefit them in the long term.

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For years, banks have taken action on the matter and offer tools in their digital platforms to mitigate some of these behavioral biases. The ones that have shown greater effectiveness are the micro-savings modules, which allow them to program their accounts to automate processes and achieve goals without even realizing it.

Greater interaction with digital banking means greater satisfaction and engagement

There are many success stories that highlight the benefits of this type of development. For example, a study published by BBVA mentions that automated savings plans are a very effective way to help people save money in times of inflation. It was found that people who were enrolled in a plan of this type saved almost twice as much as those who were not.

BBVA also indicated in March of this year that…

“the total volume of interactions with financial health functionalities increased by more than 35% compared to the same period of the previous year.”

Customers who use these features are more satisfied with their bank and are more likely to recommend it to family and friends, as they are able to avoid fees associated with account management.

Furthermore, the vision of the Nobel Prize in Economics, Richard Thaler, on “nudges” or little pushes that people need to make the best decisions in economic mattershave influenced everything. From the way governments collect taxes to how the schools get kids to eat more vegetables. But one of his biggest successes is retirement savings plans.

Thanks to the automatic contributions made to pension plans, workers get a part of their payroll to work for them in an investment portfolio. The higher the percentage dedicated to the plan, the higher the benefits collected at the end of working life.

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Micro-savings: Small contributions can make a big difference

Digital microsavings modules offer automated plans that allow the user to set aside small amounts of money in a digital piggy bank over an established period. That amount could also be linked to a variety of assets that would generate profit in the medium and long term. The main advantage of these tools is that they allow them to save money effortlessly.

By establishing automatic rules (such as setting aside an amount every month or adding €1 for each goal scored by their favorite team), users accumulate a financial cushion that can help them face unexpected expenses or make their goals more affordable, like traveling to a faraway place or buying a new computer.

The secrets hidden in financial health management tools

Automate your account is a function that allows you to mark specific conditions so that you will always have your economic situation under control. For example, you could establish a rule so that the account always has a minimum balance of €200. If the balance falls below this amount, the bank would order an automatic transfer from another of your accounts.

This feature helps us avoid overdraft or returned receipt charges. In the same way, it is possible to establish alerts to anticipate possible problems or opportunities. If the balance exceeds an amount, the bank will send us a recommendation so that we save a part of that unexpected income or indicate an advantageous investment product.

Improve your customers’ financial health with micro-savings

The Banco Santander success story: The digital piggy bank that broke records

Using innovative developments like these help entities to differentiate themselves in a very competitive market. As more and more banks adopt these kinds of features, those that don’t offer them may find it hard to compete, especially when it comes to customer experience and satisfaction. These are powerful tools!

In the case of Banco Santander, in less than 10 months its customers managed to save more than 161 million euros. Knowing that a high percentage of the Spanish population needs to improve in terms of financial education and that almost 35% do not know how inflation affects their ability to save, they decided to launch a tool to manage the domestic economy.

As they indicate in their blog:

“By configuring automatic rules, among which are rounding up purchases, periodic contributions or saving a part of the income, the application will allow saving in an easy, fast and fun way.

The user can personalize their objectives with a name and picture and define a time limit to achieve them.

These modules are constantly evolving and there are already some that are activated by income detection. If there is an increase in the customer’s payroll, the bank would launch an alert like this: “We have detected that your payroll has increased by X€ -or a X%-, do you want us to help your money grow?” Depending on the answer, that extra income will be moved to a digital piggy bank or an investment vehicle, completely automatically.

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This commitment to innovation and improvement in digital banking can be a major boost for any entity, regardless of its size. The use of artificial intelligence tools and machine learning algorithms help create more predictive models and services that translate into hyper-personalized products. The ultimate goal is to make users fall in love.

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