Gamification and nudges can make people more financially resilient. Here's how

Financial services are a key imperative for development, with clear evidence that households with access to financial services can better withstand financial shocks than those without. The COVID-19 pandemic acted as a catalyst for financial inclusion, leading to a substantial rise in global digital payments, the expansion of formal financial services, and a narrowing of the disparity in account ownership between genders.

The percentage of people in developing economies with an account in a bank, financial institution, or mobile money provider has increased to 71%, up from 63% in 2017 and 42% in 2011. However, 13% of these, a staggering 0.6 billion adults, did not use this account in the past 12 months.

If not used, digital financial services won't reach the commercial sustainability required to expand, nor will they promote financial stability and resilience. Thus, access to finance is inconsequential if people do not use the services available. Against this backdrop, increasing account usage is needed to unleash the potential of financial services to fuel global development.

Many financial institutions are using digital transformation to increase customer engagement. Here, financial service providers can use gamification and nudges. Gamification is the application of game-like elements, such as points, scores, competition, and rewards, to non-game activities. Nudges are subtle hints or encouragements that guide individuals toward a particular behavior or choice.

These techniques, when combined, have the potential to help overcome one of the most significant behavioral barriers that limit account usage: the intent-action gap. Individuals may have good intentions when it comes to managing their finances but may not follow through with the actions needed to achieve their goals, creating a mismatch of intentions and actions. This can be due to various reasons, such as a lack of knowledge, motivation, resources, or trust.

Gamification and nudges can foster sustainable financial behaviors, enhance user experience, and motivate customer engagement and loyalty. These techniques are becoming more prevalent in financial services as they make the desired behaviors more accessible, convenient, as well as enjoyable, and engaging.

The marriage of gamification and nudges is proving to be particularly effective as this is helping raise awareness about financial products and services among customers, creating desirable habits, giving them a sense of progression, and, therefore, effectively addressing the engagement gap.

Some banks have developed mobile apps that empower customers to set, track, and achieve their savings goals, rewarding them with badges and incentives upon reaching these milestones. ICICI Bank, which provides banking services to remote areas in India, helps customers save consistently through its iWish goal-based program.

Banking institutions use nudges to help their customers consistently engage with their providers, resulting in sustainable behavioral change. Union Bank of India, through its Union Jan Dhan Sankalp program, helps customers, particularly women, save every month for five months to potentially unlock an emergency line of credit.

Banking institutions also use a 'progress bar', the simplest form of gamified encouragement and nudges, for the customer to reach the milestone or complete the act while helping make progress measurable, tangible, and rewarding.

Such initiatives can encourage users to invest in socially responsible funds or contribute to charitable organizations, among other initiatives.

Nudges and gamification also can provide a sense of progression while providing personalized, relevant, and, most importantly, timely nudges. This can also be a powerful tool to address onboarding roadblocks, which increases financial inclusion.

Other tools in the gamification arsenal include quizzes. These offer an enjoyable way to educate customers and identify areas requiring further support or education. These quizzes can encompass a variety of personal finance topics, from budgeting and saving to investing, helping prevent financial stress and debt.

Budgeting games are a practical tool to help consumers learn how to create and stick to a budget. These games can challenge users to live within a fixed budget for a specific period, track their expenses, and ensure they remain within their budgetary confines.

Investment simulators are another beneficial tool that can provide a safe and controlled environment for learning the basics of investing, such as stocks, bonds, mutual funds, and risk management. These simulators allow users to manage and monitor virtual portfolios using real-time data and news, simulate market fluctuations, and understand the impacts of diversification and asset allocation. And they can encourage customers to invest minimal amounts or just a little more each month to get started.

A case in point is the "Money Coach" feature of the iMobile app by ICICI Bank. This feature utilizes gamification to stimulate users to save money, presenting them with various scenarios and challenges. The Money Coach enables users to establish their financial goals, monitor their progress, and reward them upon reaching specific goals.

Users can earn badges and rewards for completing challenges, fostering competition, and comparing progress through leaderboards. People who don't have the means to afford a financial advisor, or might not use formal banking, can use this feature to learn about setting financial goals and tracking progress.

Other games, such as "Crack the Maze" educates customers about card security, and the "Virtual Stocks" game on Facebook enables users to trade with virtual money during live trading hours. This approach can be instrumental in alleviating the prevailing lack of trust toward digital payments. Numerous individuals still harbor reservations about the safety of such transactions due to their mistrust of the Internet and concerns about potential security risks.

Those falling into this category may have limited exposure to and understanding of the online world, making it a daunting leap into the unknown to entrust their hard-earned money without proper guidance and explanation. Also, seeing friends or community members share their achievements or rewards might also enhance trust, which can be a barrier for the poor.

Financial service providers must be careful that the gamification experience remains simple, does not overwhelm the customer, and prioritizes clarity and purpose over fun. If done correctly, gamification and nudges can promote sustainable financial behaviors, enhance customer engagement, and, ultimately, foster financial well-being.