The Impact of Behavioural Economics in Financial Services


Since its inception, the Financial Conduct Authority (FCA) has revealed its intention to use behavioural economics to inform its policy and decision making processes to further aid its objectives of securing consumer protection and promoting effective competition within markets.

The regulator has turned its attention to customer behaviour because it wants to “understand the mistakes consumers make, how firms respond to these mistakes, how this affects competition, and what interventions the FCA might consider.”

Understanding behavioural economics has two-fold benefits for firms:

  • Provides valuable customer insights, enabling firms to develop business models and strategies, and products and services that meet consumers’ expectations, deliver fair consumer outcomes and enable competitive advantage.
  • Helps firms to identify and avoid where consumer behaviours may be exploited to the detriment of consumers in pursuit of profits.

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