Making the Business Case for Financial Health
I'm excited to kick off the strategy, track of emerge insights. Over the course of the sessions yesterday, and today. We've heard, so much about the great work that's happening, around the globe to improve financial, health. Implementing, these measurement, tools and solutions. Requires, companies, to invest. With me today to talk about the business case and roi, for financial, health. Is muhammad, khalil. He's the general manager, of financial, well-being. And applied behavioral. Science, at the commonwealth, bank of australia. Mo welcome to emerge, insights. Thank you and thank you for having me. So you founded, the financial, well-being. And, applied behavioral, sciences, team, at, commonwealth, bank of australia, about, three years ago. And since then you've grown it to be a multi-disciplinary. Team that has influence, and impact really across the entire bank, tell us a little bit more about your journey. Sure. So. Actually about, five years ago, um. Commonwealth, bank reached out to me um. And, the reason was that they like every other bank on the planet. Had a purpose, centered around financial well-being and if you look at. The, vision statements, of. Any of the major banks around the world they all have this core premise, around. Supporting the prosperity, and success of their customers. Um. And my background, i spent most of all of my career really trying to understand, this space and they said well you know. Why don't you come over, you know see if there's something that you could potentially, help us to do here because we're, really trying to do this and and you know we want a little bit more thinking here, so i joined the organization. Um, primarily, because of the advanced digital capabilities. They had the scale, that the commonwealth, bank has in australia. And his commitment to purpose. And after about a year year and a half of really understanding, their capabilities. Um i was able to get support, from the head of the retail bank. To begin to build this team and we started with two people. A financial, being strategist, and a behavioral, scientist, we're now a little bit over 20 people. Uh and the team is. Originally, sat in the digital, space. Because, that is where we could have had the most rapid, impact, in terms of our activities. But over time we've actually now moved into the group strategy, function. And that has been sort of a maturity, process that we've gone through where. We started by building capabilities. Building toolkits. Building evidence base and starting to drive some innovation. And now that we've got a scaled, team. Operating at the group strategy, level to really drive, the insights and innovation, across the group. And give our listeners. And viewers. Most of whom are from the united states. Just give them a little bit of a sense of, the size, and scope. Of. Cba. In the context, of australia. So cba, has relationships. Uh with one in two australians, and is the main financial, institution, for one out of three australians, it is, the largest, uh bank in australia. It actually has a very storied history it's over 100 years old originally was part of, the government, as the, uh as part of the reserve bank. Uh and then was spun out uh separately, 105. Years ago went public, in 1995. And has always, been sort of part of the australian, story, so you know cba, has been here throughout world wars depressions. You know all the challenges, that this country's faced, as well as this recent pandemic.
And So there's a very. Uh, unique, role, that this organization, plays in this society, not just as a private institution. Owned by 800, 000 shareholders. But also as a sense, as part of the public psyche. So your team. I think is different, to some of the others, that banks. Elsewhere, have established. Because. You've really put an emphasis, on science. For instance. You've done many partnerships, with harvard's, star, lab. You've done work with our leaders, lab. And. You've had projects, published, in peer-reviewed, scientific, journals. As we talk about the business case and that's what this session is about. This sounds like it would take a lot of time and money, why go to these lengths. Because it's a lot more expensive, if you don't. So, you know, one of the things that, um our team brought to this. Vision of financial well-being, was discipline. And discipline, in sort of the truest sense of the world, word is there a particular. Method, a process. A way in which we can approach this problem, to really drive meaningful, impact and change. And when we started to look at financial well-being what we found was that. It lacked, a lot of discipline. Uh. Lots of really, good intention, people across the bank doing some very good things. But the first thing was that we could, measure. Uh what financial well-being, was, and the impact we were having. And the second, was that there wasn't a clear process, by which we could develop financial, being solutions, and so. Um, bringing, science, has actually made us far more efficient, and far more impactful. Um you know the application. Of the scientific. Method. Uh has actually allowed my team to be able to generate. 10x, return. In a one-year time horizon, on almost every project we've engaged in, uh now it does take some. Uh, you know uh, convincing. Initially. Uh because, we know that teams are operating. Under constraints, constraints, from a funding perspective, from a timing, perspective, from a resourcing, perspective. Uh, but once we had a few. Uh. Examples, under our belt where we demonstrated. That, when you bring this discipline. Of science. And. And the scientific, method most importantly, the how. Uh to the way you approach, things. You're actually able to truly be agile. Because we force you to define. Clearly your hypothesis. We bring the best understanding, of human financial, decision making, and move teams away from intuitive, answers. And then we. Iterate the solution. Proving various points along the way and what that allows us to do is to pivot away from, things that don't work very quickly. And pivot closer and closer, towards solutions that do work, at scale. And as a result. You know we've done efforts for example in the lending space, where. Um you know our impact, has. Generated, tens of and hundreds of millions of dollars of impact. Uh very quickly. Uh because we brought that discipline. So probably. I'm guessing the the very first project, was the one that was hardest. To convince, leaders about but once anyone would see a 10x return. It must get easier from there. Yes, and and that's also because it's not just about discipline, it's also about courage. So, um you know one the one of the first projects we did which is the harvard business school case study on the credit card experience. Um. Was about bringing greater transparency, to credit cards so we have nine credit cards, at the time. And. Our harvard partners said listen, you visit the page and it tells you how amazing, each card is. But that doesn't really tell the customer. A lot about what's, best for them. And so we started on this on this uh, journey of saying let's bring some transparency. To our credit card experience by showing trade-offs.
This Card is great for these types of things. And here's the trade-off, if you don't travel, then you don't need the travel insurance, you don't need these points. Now. You know to go to a credit card team and tell them. We'd like you to tell people why they shouldn't buy your product. Uh is is a difficult. Thing to do and it took courage on the part of the credit card team to go you know what, if this is what the science, is pointing, to let's test it it brings transparency, to the customer experience, it begins to advance well-being, and when we ran it, what we found was that. We were able to, increase. Spend from day one, on card by 10. Reduce attrition, a year later by 20 percent. And we reduced, the probability. Of late payments. And so we improved, well-being, and we drove positive commercial, impact. But it took courage initially. And once you have enough people who have the courage, to take on sort of this approach. What you find is that others rapidly, sort of clamor for the same types of services. So. Our efforts, around, building a measurement, methodology. And framework. Uh we're running really in parallel, to yours, in fact you you may be slightly ahead of us. Um and you worked with i think with the melbourne, institute, to build your own financial, well-being, scale a few years ago. Talk to us a little bit about, how. That scale, is being used today. And, what you've learned as a result, of deploying, it in the bank. Yeah so. As when we first started one of the challenges, we had was we said listen. You have financial, being as your purpose. And yet we. Don't have a clear definition, a clear way to measure it. What if we brought the same type of thinking that we have in terms, of, two other metrics, that have visibility, for all the way from the front lines the boardroom. And those are roi, and nps. Right, everyone, in, from the front line all the way up to the top level, can, find those metrics understands, their impact on the organization, and has clear visibility, of that. So, you know, if we want to be able to drive towards this purpose, we need an equivalent, metric, that has that level of visibility. Uh and let's make sure that it is rigorous, and scientific. And so let's work with experts so we reached out to the melbourne institute, and we spent, uh almost, two years. Developing this metric and some of the. The, the really, interesting, things that were unexpected, that emergement, was first of all, that there were two measures of well-being. Uh we found that there was an observed, measure based on data. And that it was. Related, to but distinct. From a perceived, measure based on survey data. How you feel about your financial, being is generally, aligned, against how you're doing but not always the case, and that level of insight is really helpful because we found that a third of customers. Aren't. Feeling in alignment, with how they're doing. The second key insight was that. Because it was a very rigorous measure we were able to determine.
What Are the true drivers, of financial well-being. And what emerged, as the most powerful drivers, of financial well-being, were behavior. Uh and surprisingly, access to government, support. And so the fact that behavior, was so, such a big driver, much more important than income. Uh you can make a hundred thousand dollars more income but if you don't change your habit your financial being does not change. Um. That, insight. Gave us a lot more confidence, in building out our financial. Our behavioral science capability. And it also gave us confidence, that our attempts, to, nudge people to, intervene, in ways that change behavior would have a meaningful, effect. Ultimately what that means though is that now that we have this measure which we calculate, for, all of our main financial institution, customers, the one in three australians. Is that we can monitor, financial well-being, so, as the coveted crisis, has, unf uh uh developed. We've actually been able to see what's happening with our customer population, on a month-to-month, basis. Uh and we've been able to actually share that, with government. Uh providers. And agencies, that are really trying to figure out how to best support the community. Uh the second is that we are now able to, measure the impact of specific, interventions. So given that we apply the scientific, method that we do, randomized, control, trials. We can see, that this particular. Service, feature, solution. Actually fundamentally. Change or improve financial well-being. And that's also very very important because it gives us a sense of how we're progressing. And finally. We were able to show. Uh how financial, well-being. Relates, to other commercial, drivers. Say more about that last part. So, you know. If you think about the world in terms of roi, and nps. You know roi and nps, fund, drive, fundamental, decision making, you know throughout the organization, in terms of where to allocate, resources, and whether, the solutions, that are being designed, or are meeting customer, needs or making them happy. And what we said was okay now that we've got this.
Rigorous, Measure of well-being. Does it tell us something, different. And how does it relate to these two measures, and so when we. Looked at roi. Through the lens of well-being, what we saw was that. Financial, well-being, is a long-term. Measure of roi. So. Where we saw customers, well-being, improve. We saw that their roi. Improved, by one to five x that change. And where we saw financial well-being, decline. We saw that their roi, declined, by three to six x that change now that's specific to our context, and i'm sure every organization, will find different correlations. But, it really proved to us that if you focus on well-being. You're actually improving, roi. The second thing that we saw was that when we looked at it through the lens of of, nps, satisfaction. Was that there were very similar. Uh correlations, there as well that, customers, with the lowest well-being, were the ones who were least satisfied. And customers with higher well-being were more satisfied. Um, and that sort of brought, a third cone to the retina so to speak. Where instead of a black and white world of roi and nps, we now had this very nuanced, colored, landscape. Of roi. Mps, and well-being. Where we could identify. Customer, populations. That hey, you know you may think they're valuable, but actually they're they're declining, in their state of well-being. And if they continue to decline. Your profit is at risk. And you may think that these customers. Are unhappy, because of the feature or service you provided, but fundamentally. It has to do with their state of well-being. And if you don't address their state of well-being, and just try to make the services. More frictionless, more, easier. It may not necessarily, address those challenges. So when you talk about, roi. There's a time dimension, there. Yes. So. I think. Often, one of the things that people assume. Is that. Indeed, improving. Your customers, financial health may indeed accrue to roi, but it will take a long time to do so it's not going to move next quarter's. Earnings, report. As an example, um. Talk to talk to us a little bit about, how you all have dealt with that time dimension. And, whether, it's indeed, true that these kinds, of improvements. Are really long-term. Plays, as opposed to short-term. Plays. They're not completely. Long-term, plays, so you know if you think about the fundamental. Drivers, of bank profitability. The most immediate, is primarily. Net interest margin. On a risk adjusted basis on your lending side, then it's net interest margin on your deposit, side then it's sort of the depth of the relationship, that you have with customers.
Um What we've been able to show is that by focusing on well-being. The the lending, aspect, moves very rapidly. Because when you're able to help consumers. Better manage, their, spend. Better control. Uh. Uh uh their their ability, to save. And repaid, debt, that has immediate, value. Uh and we see very rapid, results, in that space and that's where we primarily, focused, for the first year or two. At the same time we were building. Experiences. That focused on helping consumers. Build up savings, balances, build up those buffers, and so of course that has an impact, on. Your ability to generate profit from the savings side, that takes, a longer period of time of course because people need time to save. Whereas, repayments. Are immediate, due next month right due the month after. And then finally, you know as we've started to develop, a system of financial well-being because financial well-being, is not about, individual, interventions. It is actually about creating an integrated, solution, set that helps consumers. Manage. All of the aspects, of their well-being. You know what behavioral, scientists would call choice architecture. How do you set up the way, that i make choices about how i'm going to allocate, spend as it comes in savings as it becomes available. And debt as i have to repay. And and when you when you start to build these systems what you find is that the relationship, also deepens, over time, that consumers, see value. In having. Multiple, products with you, because they are working together, to support that financial, being system. We're primarily, driving a lot of value in that first space on the lending side, we're starting to see the value generated, in the second space. And in the third space, we're starting to see signs, that consumers, are starting to link together and understand, that, you know what i shouldn't be thinking about, just buying a product. What i should be thinking about is serving my wealthy. That's really exciting. You know in the same, way that. You talk about. This is really an integrated, system. Uh. That we need to think about it that way it's true that as an enterprise. Um, an enterprise, needs to think about its financial health strategy. In an integrated. Fashion, across. Across the entire, organization. What's been the biggest challenges, for you, uh. Integrating, this, at an institution. The size. Of cba. And what are you still working on.
Yeah There were a few things one. Was infrastructure. So, you know even with cba's, very advanced capabilities. Um, in terms, of, being able to work, collaboratively. With our academic, experts, because behavioral, science, is a, rapidly, evolving, field, and if you are working in the space of financial well-being you're dealing with challenges, that have no clear answers so, you know just like. An aeronautics, company, would have partnerships, with a material, sciences, division at a leading university, we knew that having this relationship. With those universities, was important. There were challenges, in. Getting secure data access. Ensuring, that that you know fulfilled, all of our privacy, and all of our other obligations. And so that was hard work so, you know it isn't just signing up with the university and saying let's go do some research together. There's a lot of work that goes into getting that, made possible. Second aspect of infrastructure, was experimentation. We wanted to make it easy, for our partners, business partners, to be able to do experimentation. Rapidly. And and that, you know at the, in the past. Would have been a lot of effort, well we've moved towards what we call zero cost experimentation. Building into the infrastructure. Automated, randomization. Automated, controls. So that when we build a new feature a new product it's actually a push of a button, and we can allocate. Uh out a control group and a, trial group to validate, that, so that was the first, sort of big challenge was infrastructure. Second of course was. Working with teams around their constraints. So people have deadlines. You know, uh marketing, typically, has you know a road map of features that they'd like to see out in market. Um you know people have, kpis. That they need to hit in terms of uh cost and revenue. And so. Figuring, out how to, adapt. The scientific, method to be able to. Work in a highly agile, way, was also a big challenge and that's going to be specific to every organization, we found our own work arounds our own ways to solve that, but it took a lot of effort to really work through that so that, we could still launch projects, products. But do what we called for example, encouragement, design. Where, the product is available to all. We may only speak to some of the population, about it because they're our trial group, the other population. May not be, may not have direct marketing associated, with it but if they'd like to find it they can, and that encouragement, design model allows us to run an experiment, at scale. Without creating complexity, for the marketing, team where they have to go well it's not really out in market, we don't know if we can if we can go out with our campaign. Those were the the two biggest, uh i think challenges, the third. Honestly, is more related to the team which is it's very hard to find. People who have this expertise. Particularly in the behavioral science space. Uh because. Doing, and applying, behavioral, science. In a large financial services, organization, is not something, every behavioral, scientist, is equipped to handle. Um. You know. Behavioral, science thus far up until very recently, was, an academic, track, and it is now turning into an engineering, track and we just don't have enough engineers, on the planet, to really drive this forward, uh at the scale that i think we will need to over the next few years. So many of the, people who are listening, to this, mo. Um. Are at. Uh. In some cases, much smaller, institutions. They may be far earlier, in their journey. Uh the picture that you've painted. Of what you've accomplished. At cba, is incredibly, impressive, but i suspect. To. Folks who are earlier in their journey it may feel, daunting. Or. Impossible, to replicate, so. As we wrap up this session, if there's one, piece of advice. You could impart. To. Professionals, who are. Interested, in improving the financial health of their customers.
And Are really, trying to make the business case internally. And figure out where to start. Uh in terms of building their strategy, what would your advice be. I would say be part of the financial health network. Uh and that didn't pay him to say that. No no. Um, and that's primarily, because. I do think that there is a certain skill required, to do this level of sophistication. Um, it is very hard work it does require, and i'm privileged enough to meet an organization, that has that ability, the ability to support it at that level. But i also think there's a real importance, to creating a community of practice. Uh and i think that's what the financial health network is, is is playing that critical, role. Of bringing those insights, and bringing those, those proof points. And sharing it with the broader community so that more organizations, can act on it we at cba, for example, through our partnership, with harvard through our own work, in collaboration, with the financial health network. Are making public as much as possible. All of the work that we're doing. Because we know that financial, health is is too big of a challenge, for any one organization, to solve. And we know that there are other organizations, that have the scale that can continue to build on our insights and add to that in site base. And because we think it is an important way for us to give back to the global community so, for smaller, organizations. Look for those proof points look for that evidence and i think the financial health network is doing a great job of, of bringing all of that together, and making it available, in a way that you can act on without necessarily. Having to. You know try to rebuild, these types of capabilities, within your own organization. Mo thank you so much for joining us today i appreciate, it. Oh it's my pleasure thank. You. You.