Tamara Kostova, CEO of Velexa, empowers institutional clients through customized and embedded investing services.
One of the greatest challenges facing wealthtech providers is the low level of global financial literacy. In the EU, 64% of the population has a medium financial literacy level, and 18% have a low level.
In 2016, the U.K.’s financial literacy level was lower than the OECD average, and data from last year shows the U.S.’s financial literacy level is around 50%.
It’s impossible to democratize finance without successfully educating people about finance. However, educating adults comes with unique challenges. For example, some adult learners have time constraints, while others might have a mindset that prevents them from easily absorbing new material.
In this regard, we can look at one of the world’s most successful products for inspiration—Netflix. The parallels might not be apparent at first. However, “the Netflix Effect” is alive and well, driven by the company’s data-driven platform, highly capable content curation and smooth user experience (UX).
The Netflix Effect And Its Relation To WealthTech
The Netflix Effect is the phenomenon where previously unknown items surge to “fame” status overnight. The items might be anything from furniture to costumes to the actors themselves. The streaming network’s influence is incontestable, and its stock is considered one of the five most successful in the U.S., along with Apple, Alphabet, Meta and Amazon.
Netflix’s product is the driving force behind its growth, which stands at over 300 million users.
I think the same principles Netflix uses to keep users entertained and engaged can be applied to any product. For example, wealthtech providers can use a content discovery paradigm like Netflix’s to help investors find educational modules that interest them. Netflix’s content curation can translate into financial literacy content curation. Users might even have a “Learning History” page that matches the streaming platform’s “Watch History.”
Let’s look at three aspects of Netflix’s product that financial literacy and investment platforms can leverage immediately.
1. Smart Content Entry Points, The Hook Model And Engagement Loops
Netflix’s signup process is swift and tailored to the customer. A user selects the movies they like, and the platform will suggest more based on that criterion.
The immediate satisfaction of watching a show the customer enjoyed often leads to them watching further shows. I think Netflix likely uses the “hook model” and “engagement loop” model to achieve this, two design models based on providing satisfaction to the user, resulting in continued use.
How To Implement This In WealthTech
When users first sign up, a wealthtech platform could ask for input regarding the user’s interests, experience and pain points regarding finances and investing, then map these to a user journey.
By focusing on bringing immediate value to the user, you create a “hook model” and encourage the user to continue their learning path.
Before the end of a lesson, the platform could start counting down to the beginning of the next lesson, just like streaming platforms do before the beginning of the next show, thus encouraging engagement in a loop.
2. Data-Driven Content Adaptation And Behavioral Pattern Recognition
From a user perspective, Netflix suggestions might seem simple. The user sees, “Because you watched X, you might like Y.” However, how does Netflix choose Y when 100 different shows might also match the criteria?
Here we can look to data and behavioral pattern recognition.
As the user engages more with Netflix, the company gathers more data about the user’s viewing patterns and can predict content more accurately. We know that Netflix at least tracks when you pause a show. It tracks other data as well, such as preferred languages and times to watch.
Similar to Spotify, it’s possible they could track data about skips, fast-forwards, rewinds, drop-off points, completion rates and engagement rates as well, adding up to enough knowledge for machine learning to do its work. Complex data analysis leads to simple—and often improving—recommendations of what to watch next.
How To Implement This In WealthTech
As the user engages with your investment platform, gather data to determine which areas the user might need assistance in. For example, a platform might track specific user interaction patterns such as:
• Time spent on charts vs. text: This could indicate a visual learner, so the platform could suggest more interactive charts.
• Calculator tool usage frequency: This could indicate a number-oriented learner, and your platform could provide different types of calculators or spreadsheets for the user to analyze.
• Video completion rates by topic complexity: For story-driven users, your platform could suggest more case studies.
Similar to streaming platforms, you might build in “Because you engaged with X” pathways. The behavioral pathway should ideally be linked to additional underlying data to ensure the recommended next action is the most likely one the user will enjoy.
3. Tiered Access Strategy
Netflix’s multitiered option allows users of all means to choose a plan suited for them. The company recently launched an ad-supported tier, and 40% of its new global signups chose this tier. Each tier offers a different value proposition.
How To Implement This In WealthTech
A financial literacy product has the benefit that, if it does its job properly, its users should become more successful. Offering multiple tiers with clear indications of the value each level brings opens the door to users of all means.
At a basic tier, users could be learning budgeting tools and market basics, while intermediate education and tools could range from portfolio analysis tools to tax optimization guides. Advanced learners could learn about options strategy blueprints and simulators and advanced technical analysis tools.
Empowering The Retail Investor
Retail investors are pouring record levels into stocks. Unfortunately, these investors typically don’t have access to the same level of advice that more experienced investors do. Many of them also prefer a DIY approach.
It’s up to wealthtech providers to ensure that these investors obtain sound advice and are more capable when it comes to managing their investments.
“The Netflix Effect” was made possible partly by the elements described above. Creating an investment platform that emulates these successful actions could help you surpass your competitors.
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