Banks should embrace new tools for measuring consumer financial health

Victor Moussa - stock.adobe.com

The Office of the Comptroller of the Currency's recent encouragement of banks to support their customers' financial health is a watershed moment for consumers and the industry. In placing products in service to financial health, the OCC has outlined a path by which the industry can reverse dwindling consumer trust and instead engage, support and earn the loyalty of its customers.

The OCC recently released a report encouraging banks to measure the financial health of their customers using a set of "vital signs," indicators akin to those doctors assess at a routine checkup. The report also provides examples of the actions banks could take to support customers whose results suggest they are facing financial challenges.

This arrives as consumer trust in U.S. banks continues to fall significantly, with a new J.D. Power report documenting a growing percentage of people having switched or planning to switch banks. Refocusing on financial health that is rooted in measurable progress is a powerful strategy for banks to deepen customer relationships and boost their overall performance.

Dozens of banks, credit unions and fintechs have been experimenting with financial health measurement for more than five years, largely through periodic customer surveys, and a small but growing number have looked to administrative data for insights. The OCC's recommended vital signs provide a common framework and a starting point for the industry to test how best to leverage transactional data to understand in real time both the state of their customers' financial lives and what strategies work to improve them.

Acting Comptroller Michael Hsu shared his vision for the Vital Signs initiative at my organization's EMERGE conference as the report was released, making the case for why financial health matters for banks and for the banking system as a whole.

"Imagine if there were clear and objective measures of consumers' financial health," Hsu said. "... Consumer financial product offerings could be better aligned with customer needs. … Banks that support customers' efforts to improve their financial health would enhance their customer relationships and demonstrate that the banks truly have their back and can be trusted."

Banks play an important role in the financial lives of their customers. They could be even more effective partners if they had a simple, objective, accurate approach to taking their customers' temperature, so to speak, and knowing what the equivalent of a fever looks like. As the Financial Health Network has long said, and as Hsu repeated, what gets measured gets managed.

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The OCC defines consumer financial health in much the same way the Financial Health Network does: having stable day-to-day finances, resilience to withstand shocks and security for the future. The three vital signs the agency has identified — positive cash flow, liquidity buffer and on-time payments (or a prime credit score) — help measure the state of customer financial health. In addition, the agency has suggested a benchmark for each indicator. For instance, to measure the presence of a sufficient liquidity buffer, the agency suggests a threshold of $1,000 of available funds. These benchmarks are expected to evolve and may differ for different customer segments based on the research and insights that banks undertake while implementing the vital signs.

The recommended metrics are based on dozens of conversations with bankers, consumer advocates, researchers and others. Hsu and the OCC are eager for banks to pilot them, share their learnings and continue to refine them in ways that ensure they are both easy to measure and an effective signal.

The Vital Signs initiative builds on the Financial Health Network's efforts to jump-start the financial health movement by engaging with more than 100 organizations to measure the financial health of their customers and workers. Some, like Regions Bank, have embedded financial health questions diagnostics in a goal-setting tool or on their homepage. Others, like SaverLife, use financial health measurement to assess the impact of their efforts. Still others, such as Wright-Patt Credit Union in Ohio, leverage financial health data to better segment customers. We even built a technology company, Attune, to help organizations implement financial health measurement.

Beyond determining the best measurement scheme, banks have work to do to develop the "prescriptions" they will offer customers in response to what they learn from the data. While banks cannot control the macroeconomic conditions or life events that contribute to their customers' financial health, they have the opportunity to offer a range of products, solutions and tools that can help their customers manage their finances through both good times and bad.

For consumers with negative cash flow, banks may not be able to manufacture money, but they can offer tools that will help consumers understand their expenses and even lower them — for example, by finding and eliminating zombie subscriptions, or by making customers aware of the late fees they are incurring and offering them alternative ways to avoid them.

Similarly, for those with an insufficient cash buffer, banks have a wealth of options for helping customers build savings — prize linked, goal based, automated, tax time, to name a few — that have been tested and successfully implemented in dozens of situations and settings. And for consumers with less than stellar credit histories, a variety of credit builder tools have proven to deliver results.

I commend the OCC for encouraging banks to shift the way they view their ultimate purpose, from delivering financial products to helping their customers achieve positive financial health. If financial health is what truly matters, then it's time we measure it.