Making Banking Fun Pays Dividends - The Gamification Trend in Digital Banking
The banking industry has a reputation for being staid and boring. Its complexity can also be very intimidating, leaving customers unwilling to engage more than necessary. But what if banking more closely resembled the money games we played as kids? If you "collect $200 every time you pass Go?"
The new gamification trend in digital banking is doing exactly that. And it's a game changer for fintech investors.
What Is Gamification?
The term “gamification” refers to the process of adding gaming elements to non-gaming activities. For example, there might be challenges in which "players" can win rewards or gain levels.
It was first coined in the early 2000s, but the concept pre-dates mobile applications. Remember the original physical stamp-type loyalty cards—buy nine coffees, and the 10th is free? And consider how some people take couponing to the extreme to score a “win” against the retail giants.
However, digital technology takes gamification to a new level. It provides attractive, even alluring, interfaces offering alternative worlds that players can engage with via customizable avatars. Feedback is instant, informed, and personalized because it is generated from data-driven insights.
The technology has even led to the creation of new alternatives for "rewards," such as non-fungible tokens (NFTs). In addition to conventional rewards such as discounts, electronic rewards can be delivered seamlessly and cost-effectively.
What Are the Benefits of Gamification?
Organizations are spending a lot of money gamifying their offerings. That’s because making things fun for customers generates significant returns. Here’s how:
Research shows that when gamification is introduced to a product or service offering, customer engagement increases by as much as 700 percent. This is because gamification taps into our psychological need to be entertained, seen, recognized, and rewarded.
When customers enjoy a product, they talk about it to friends and acquaintances. This word-of-mouth advertising is effective and free. It is automatically targeted—people will only tell those friends they think will be interested. They also generally assist with onboarding, explaining how things work and reducing frustration for the new customer.
New Product Uptake
Incentivizing the trial and use of new products and services is an extremely effective way of getting uptake. The resulting data can help determine whether to pursue or modify them.
With all the demands on people's time, getting customers to educate themselves can be challenging. It can often be essential that customers are skilled in the proper use of products and services, understand the terms and conditions of sale, or be advised of changes in associated legislation.
How people engage on gamified platforms provide significant amounts of data about their behavior. They are also generally more prepared to share information when they get something in return.
Examples of Gamification in Banking
The opportunities offered by gamification are vast, but unknown. They can be simple acknowledgments of ordinary tasks, such as “winning" a badge for updating contact details. Customers could also be given opportunities to win cash or physical prizes for making and following a budget, or competing against other customers on tax quizzes.
One of the classic examples of gamification in banking is PNC's "Punch the Pig" feature, introduced in the 2010s. Users can customize a virtual piggy bank with different colors or patterns and instantly transfer money to a savings account by tapping it and seeing the balance update. It makes a tedious transaction fun and engaging.
Gamification isn't restricted to banking transactions. Bank of America's Security Center dashboard-style dial makes banking security a partnership with customers. The more security tools they make use of, the higher their score.
And digital-only bank Ally has gone as far as creating “Fintropolis," a world in Minecraft that teaches children the skills necessary to successfully manage money. They can practice by opening virtual bank accounts, investing in virtual stocks, and taking out virtual mortgages to buy virtual houses—all from within the game’s fictional economy.
What Are the Risks of Gamification in Banking?
Banking is a highly regulated industry. As gamification becomes ubiquitous, regulatory authorities will inevitably look more closely at the activities involved. Investors should assure themselves that companies that employ these techniques are familiar with industry regulations. This will help ensure developments align with prevailing legislation and the underlying intent.
There is a potential "dark side" to the gamification of financial transactions. Customers could be encouraged to act contrary to their own interests. For example, even before the gamification trend, people were “rewarded" for credit card spending they couldn't afford. While this might result in short-term wins for the credit provider, ultimately, it is not a profitable business practice. Investors should assure themselves of the longevity of their customer base by encouraging and rewarding wise financial choices.
Gamification is an exciting trend in the financial services industry. New entrants to the industry have successfully used it to win clients from incumbents, but established institutions are also introducing game-like features. As with any offering, an underlying value must be provided to the client to ensure retention.