A Financial Technology Startup’s Guide to Behavioral Economics

The use of technology and innovation to provide services coupled with the rise of the smartphone savvy and millennial consumer is changing the face of finance.

Both established financial institutions and new startup ventures are growing the role of financial technology in everyday exchanges. But with the greater availability of new options, products and services, there exists a challenge for companies in getting past the noise, in marketing their service, and successfully engaging potential consumers.

Getting through the noise and directly to the client matters. But, unfortunately, getting to the consumer is the easy part.

Understanding how an individual formulates their choices and the parameters that affect uptake can help a venture either thrive or fall flat. Taking account for the inherent cognitive biases and influences that disengage a potential customer and along with prominent heuristics—or rules-of-thumb at play—can help financial technologies formulate a customer strategy that efficiently promotes their venture and helps their customers succeed.

The growing academic field of behavioral economics can help bridge the gap.

The opportunity to build analytical economic models that account for that manner in how people think, decide and act, needs to be leveraged. For a beginners guide here are five cognitive biases, noted from research within the field of behavioral economics, that ventures should be accounted for:


People’s choices and acceptance of costs are tied to prior experiences. If you engage in a service environment with many competitors, their pricing strategy and marketing campaigns directly effect you.

Number values in relation to costs and charges, any perception of mistrust, and a lack of financial prudence, matter.

Decision Paralysis

When given too many options individuals get confused with a choice overload. This paralysis can lead customers to choose the easiest and most convenient option. If your venture needs some explaining, this can be detrimental when in a noisy marketplace.

Importantly, in resorting to the conventional choice, it not only leads consumer’s to not choosing the most efficient choice for them, but can also lead them to not choosing at all, disengaging from the market.

Hyperbolic Discounting

People tend to value gains available immediately more higher than those gains provided in the future. This explains why people find saving for the future to be so difficult.

By tying future saving goals with immediate and ongoing tangible gains for the consumer is a difficult challenge to strategize, but one that is necessary to account for.

The Planning Fallacy

Time and again, people underestimate the actual time needed to accomplish tasks and the resources required.

Of all the insights gained from research, this is no surprise. Accounting for this reality is consequential to customer on-boarding and retention.

Loss Aversion

Here is the golden egg of behavioral insights: the specter of losses looms large and impacts a consumer’s choice more greatly than the prospect of an sure equal gain. Taking a value-laden service or product away is more impactful upon the mind of the consumer than providing them with the same service or product—even for free. Limiting the specter of losses and the negating “fear of missing out” for clients really matters.

Insights from behavioral economics show that ventures should no longer rely on simple models of consumer interaction. Time and again people intuitively make poor decisions. Arguably, the value proposition of all fintech ventures serve to provide novel solutions to many of finance’s old problems. It will be near difficult to change conventional behavior by using outdated consumer models, but if leveraged correctly, insights from behavioral economics can help financial technologies flourish.

Getting your venture past the noise is only the first challenge. Understanding and accounting for how your potential client thinks and plans for their financial future is the second hurdle. Using insights from behavioral economics can help both startup fintechs and industry leaders close the loopholes and strengthen their customer’s experience in the new financial world.