Gamification and banking: A win-win constellation with perspective?

Gamification is a pioneering trend that transfers the principles and mechanisms from computer games into another context, such as the economic context. that Gabler Business Encyclopedia defines gamification as “the transfer of game elements and processes into non-game contexts with the aim of changing behavior and increasing motivation among users.”

Of course, this idea is not new. Playful reward systems have been used in school lessons to motivate children for decades. Discount brand or frequent flyer programs also use points-based systems with hierarchical levels for customer loyalty. Companies have long recognized that they can use gamification methods to promote innovative processes by increasing customer and employee engagement through incentives.

Recently, gamified broker, investment and financial management apps have now found their way into the financial sector. What do they promise?

Two worlds, three goals: financial education, usability and customer loyalty

Traditional banks have faced numerous challenges for years. The ongoing low or zero interest rate environment is threatening their core business. At the same time, the rapidly advancing digitalization is playing into the hands of up-and-coming fintech competitors. The stated goal of fintechs is to revolutionize the financial sector with transparent, cost-effective, user-friendly technologies and apps. Digital financial products are displacing traditional banking services by providing customers with a Service adapted to individual customer requirements, available and accessible at any time offer at the best conditions.

Intuitively designed banking or investment apps, some of which have playful features, such as personal avatars, trophies for achieved goals or sound effects, are central. The result of this increasing digitalization and gamification is nothing less than a change in the image of the banking industry: Investing money is no longer boring and staid, but is fun and has become part of the consumer world.

In doing so, gamification in the banking world primarily pursues three goals: financial education, usability and customer loyalty. A bank customer doesn't want to play as a pastime. Instead, he focuses on an optimized user experience, accessibility and transparency. Each gamification element must therefore be associated with direct added value for the customer. The playful incentive should only be a means to an end to help customers achieve a desired goal or to make banking products that are sometimes complex or confusing, more customer-friendly and understandable.

Gamification in the financial services sector has the following main objectives:

• Promoting savings through personal goals

This includes short-term saving, but also medium-term to long-term investments and pension planning.

• Improving daily financial management

Customers can easily track and categorize spending and monitor their own budget plan.

• Teaching financial literacy

Apps explain complex financial terms such as inflation, liquidity management, or investment strategies through films, simulations, or games.

• Customer loyalty and development of new target groups

Gamification enables financial service providers to position themselves on the market as innovative, customer-oriented and cost-effective players and to attract customers from traditional financial institutions. For example, lean structures and lower management salaries result in minimal fixed costs. As a result, fintechs can charge their customers particularly low fees — or even offer banking services free of charge.

• Promoting community spirit

Financial apps promote exchange between customers and their own company in internal forums or chat groups.

Financial apps with gamification elements: Very easy to use

There are currently numerous successful financial apps that include gamification elements. These include, for example, apps for financial management, neobrokers or apps for digital investments. Gamification elements include financial scores, which rate the assessment of personal financial status on a point scale, “play money” to gain initial stock market experience, or progress trackers to achieve personal savings goals. An intuitive design also helps you get started quickly, find your way around the interface and easy use of the functions offered.

Many fintech apps also feature an active community, a knowledgebase and current, easy-to-understand financial market reports. The corona crisis appears to To accelerate the trend towards digital financial services. The Robinhood app, a neobroker from the USA, has so far gained three million customers this year alone. However, Robinhood came under criticism a few months ago: The platform is too playful and therefore primarily appeals to inexperienced, young investors.

Low hurdles, high risk — Gamestopper Gamestop?

Of course, gamification also involves certain risks: The rewards can set risky or false incentives. A so-called “addictive design” can result in addiction-like increased consumption or even conditions such as attention deficit disorders. Critics such as Tim Berners-Lee or Tristan Harris, founders of the Time Well Spent movement and the Center for Humane Technology, have therefore been demanding for a long time ethical rules for web technologies.

The risks of gamified financial platforms became obvious at the beginning of 2021: On the social media platform Reddit, retail investors agreed against hedge funds that had bet on falling prices of stocks, such as Gamestop. In their opinion, private investors bought these “undervalued” stocks via neobrokers such as Robinhood and drove prices higher in this way. Some speculators earned a lot of money, while others recorded massive losses, which they tried to compensate for with other trades. A pattern similar to gambling addiction.

The fact that stock market speculation via app entails similar risks as gambling is also true Gerhard Meyer, addiction researcher at the University of Bremen: “Anyone who is successful naturally creates a feeling of happiness.” If, on the other hand, a share loses value, the investor can immediately speculate on another company again and reactivate the exhilarating feeling with the hope of a new bet. In addition, stocks are generally not perceived as addictive substances, but as financial instruments. As a result, they suggest less risk than roulette or other games of chance, for example.

Securities in the hands of knowledgeable investors are an asset to any portfolio. However, stock market novices should first acquire the necessary expertise and not be tempted into speculative transactions by the seemingly playful presentation of some neo-brokers.

Conclusion: Safety and responsible design come first

Despite numerous positive aspects that gamification has for financial service providers and customers, education and security, compliance and control requirements should be paramount. Gamification must be used consciously and responsibly, otherwise there may be opposite effects that damage both customer trust and industry reputation.

For customers of digital financial services, intelligent design replaces unfounded knowledge. Even though this improved convenience is certainly a key benefit of digitization, control of one's own finances must not be lost sight of.