A Goldman Sachs psychologist breaks down why customers stay loyal to old institutions over buzzy banking startups - and reveals the mental barriers fintechs need to tackle
- The concept of "stickiness," or customers' tendency to stay with the brands to which they've long been tied, can pose a challenge to new players looking to gain market share in financial services.
- We spoke with Patrick Perkins, a psychologist and managing director at Goldman Sachs who oversees executive coaching there, about the ways fintechs and incumbents can think about design and brand loyalty as new options crowd the space.
- "The bar is very high for people to actually make significant changes in their financial choices, because they're more motivated to really stick with what they know," Perkins said. "They're more motivated to minimize that chance of a loss and retain their sense of power and control."
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Let's say you have a traditional brokerage account that you've used for years, and you're pretty happy with it.
You trade stocks and exchange-traded funds every so often, and for the most part, you like the user experience. It's relatively easy to use, and you recently opened a low-cost investment account with the company, too. Plus, it's the brand your parents banked with, and the one you've associated with financial services since you were young.
Sure, you've seen ads for startups with splashy marketing and snarky taglines, but, frankly, you're lazy. And you feel comfortable with your experience. Why would you move your cash and investment accounts?
That's "stickiness" in action. In other words, it's customers' tendency to stay with the incumbent brands to which they've long been tied without much thought, even as new and often digital-first players spring up in the marketplace.
The concept is key to understanding the evolution of the fintech and digital wealth management space these days - and what makes for a successful product rollout - with a crowded field of established players and new entrants all vying for a new, younger generation of customers' dollars.
A potential customer's personal financial decisions come down to "power and control," said Patrick Perkins, a managing director at Goldman Sachs who oversees executive coaching there as part of the firm's leadership development group.
Staying with your bank, for instance, and maintaining a level of comfort with a brand you trust can translate into feeling like you have a level of control over your financial picture.
And it's critical for those launching new options to design them with an eye towards eliminating anything that could slow down the process of switching financial services providers.
"If there's any kind of barrier in the way, if there's anything that is going to put something between A and B, even if it seems very minor, or the person may perceive it as minor, they're likely to stick with A," Perkins said in a recent interview with Business Insider.
"So in terms of when you're thinking about - how do you actually get people to convert, bring on new customers to a new platform, or a new company - they have to find ways to eliminate those barriers," he added.
That could also help explain the rise of fintech-bank partnerships. Startups that have struggled to gain market share often team up with big incumbents.
The fintech SigFig, for instance, pivoted away from a standalone direct-to-consumer approach and instead to a business-to-business strategy, white-labeling technology for partner wealth managers like UBS and Wells Fargo.
Some firms have also taken to special incentives to claw new customers away from their existing services - that goes both for startup fintechs and incumbents rolling out digital options.
For instance, JPMorgan's self-directed brokerage and investment business, You Invest, is offering new customers $625 when they open and fund a brokerage account this month. Online brokerage E-Trade, meanwhile, is offering a $100 cash reward for customers who "switch" to its service, one current advertisement says.
"The bar is very high for people to actually make significant changes in their financial choices because they're more motivated to really stick with what they know," Perkins, who joined Goldman in 2015, said. "They're more motivated to minimize that chance of a loss and retain their sense of power and control."
But on the other side of the equation, there are ways for apps to appeal to people's natural tendencies in a way that makes them even more inclined to stick around.
People tend to be "pretty goal-oriented in general," Perkins said "So apps or other interfaces that actually build in a way for a person to track how they're doing that makes it very simple to see their progress."
And keeping customers engaged, particularly younger ones, is an important aspect of creating stickiness. That might be through a notification alerting users to a development in their account, or showing how their savings has fluctuated in recent days.
"Basically, showing people feedback and giving them regular feedback is very important," he said. "You see that especially with certain customer segments, for example, especially in the younger population and millennials, that instant, more regular drip of feedback is quite important."
Measuring stickiness at firms large and small
Four years ago, Goldman Sachs launched its digital bank, Marcus, with the hope of drawing in clients who are still building up wealth, and catering to a less-affluent client set than it's long served. It's also revamped its broader wealth management business as it looks to form a more Main Street image.
The team behind Marcus, which only last month released a mobile application, has folded Perkins' training and guidance into its overall strategy.
"Being cognizant of the fact that people essentially are giving up in some ways their power and control when they turn over their money - that's underlying all of this," he said.
At the bank's first-ever investor day in late January, executives walked investors, analysts, and journalists through its plans for each division at the bank, including the newly organized consumer and wealth management arm.
During a question-and-answer session, Beth Hammack, the firm's global treasurer, asked the firm's global head of liquidity risk, Rajashree Datta, about how she measures deposit stickiness. Datta said she thinks about factors like balance size and relationship length.
For Marcus deposits specifically, she added, "we're also very focused on deepening our existing client relationships to enhance stickiness."
