MADISON, Wis. (2/20/15)--Credit unions have a unique opportunity to harness "feedback loops" to shape positive financial behavior in their members, especially given the amount of data available to financial institutions, according to a recent paper from the Filene Research Institute.
"The Personal Touch: Optimizing Feedback Loops in Financial Services" illustrates how using feedback loops can improve engagement and make member relationships more meaningful with cross-industry examples such as the McDonald's Monopoly promotion and health-monitoring smart device apps.
Each action or transaction a member initiates with a credit union leads to a response from the credit union, the paper argues. For example, if a member overspends a credit card limit, a fine--or the end of a feedback loop--can shape the member's future behavior. Though negative reinforcement doesn't always work.
"Behavioral change is at the heart of what credit unions should be trying to accomplish," the paper's authors wrote. "In sum, credit unions should want to improve society by helping their members make better choices at the micro level. Harnessing the power of feedback loops can help."
Feedback loops can be used on members to shape spending and budgeting habits; on employees to encourage professional development; and on volunteer directors to foment continued education, the paper said.
Positive feedback loops, which the paper endorses ahead of negative feedback loops, could involve congratulatory messages for growing a savings account or spending responsibly.