Financial Services through a Gendered Lens - A critical reflection of financial services in a gender context from a social, political and economic perspective
Christin Nagel, Product Manager Digital Investing
The debate about designing solutions for women financial services customers is not fully explored, leaving unintended blind spots in how the industry serves half the population. However, the financial services industry has the potential to do pioneering work and promote gender equality through its influence. This blog post looks at financial services in the context of gender debates from the perspective of society, politics and business in order to contribute to the critical and increasing awareness of gender issues in the industry and to provide impulses for the transformation of more inclusive financial services. The financial inequality of women should not only be tackled by women themselves, but also by society, politics and business.
Financial services are not gender neutral, but historically designed for men. Women have only existed as customers in banking since 1958, when they were allowed to open their own bank accounts and dispose of their own assets with the entry into force of the „Law on Equal Rights for Men and Women in the Field of Civil Law“. Previously, women needed the consent of their husbands for this. The business model of banking was thus developed by men for men. That is not reprehensible, because the main customers were men up to then. However, the model still has an impact today and results in women being served like men. This assessment is reinforced when the financial behavior of women is regularly analyzed in comparison to men and, for example, the investment behavior of men is used as a standard and benchmark. The negative consequences for women of the “image of man as a prototype of human beings“ became more tangible since the publication of „Invisible Women“ by Caroline Criado-Perez. These problems can also be identified in the financial services industry, which could become even worse in the future due to the ongoing digitization of the financial markets. The era of digital transformation offerings a good moment for knowledge building and knowledge sharing to push the development of the financial industry in a more sustainable and inclusive direction.
Due to their increasing purchasing and financial power, women are now attracting more attention from banks as a target group. With projected rates of wealth growth, driven by higher educational qualifications and increased labor force participation among women and thus higher wages, women have become a business case. In addition, women live longer on average than men and could thus experience a double transfer of wealth – from parents and partner – which will be administered at the bank of the woman’s choice.
„Women“ as consumers are a very heterogeneous group. Therefore, when segmenting the market, caution and awareness is necessary that women’s needs depend on many factors, such as occupation, family life, personality, social class, income, place of residence, culture and many other factors. Women are a diverse group in themselves and therefore there is no one right solution for all customers. A young, single, working woman has a different life and financial situation than a woman of the same age with three children and no career.
The first providers, especially Fintechs with their reputation for being particularly user-centric, have focused on developing solutions for women. The trend towards women-oriented finance is new and the number of providers offering products and services for women is growing rapidly. Almost all initiatives are from this millennium and 55% are from just the last five years. Two variants of solution offerings can be seen in the market: financial institutions and startups such as neobanks, as well as financial education services and peer-to-peer community platforms. While relatively few investment services companies explicitly target women, a very rich culture of communities and learning platforms is developing.
The financial system underpins all areas of society. Consumers of financial services are all stakeholders in our society. Every person in every society is either an existing or potential consumer of financial services.
The special realities of women in terms of finances include a gender pay gap, flexible working hours and career breaks. Women combine work with caring for a family, cope with everyday life with a lower income and savings. They juggle career, education and maternity leave with caring for elderly loved ones. In addition, women live longer than men with less savings. The financial challenges of the realities of life can be quantified by the gender pay gap, longer life expectancy and the influence of unpaid care work as well as a pension gap at retirement age. There is therefore financial pressure for women with regularly lower average incomes to save, invest and make provisions for old age.
Although the necessary entry into the subject of financial investments should be simplified and made cheaper through digital solutions, fewer women than men start investing today. The differences in investment behavior that are most often cited to explain the gender investing gap are differences in risk attitude, self-confidence and financial knowledge compared to men. The common conclusion is that women invest more risk-aversely, have less financial knowledge and show less self-confidence when making investment decisions. When interpreting gender differences in investment behavior, it should be borne in mind that these can also be overestimated and can also be driven by different social and demographic factors such as education, financial circumstances or employment. For example, differences in risk behavior are not directly related to gender, but are related to income insecurity, income differentials and differences in women’s net worth. Accordingly, women would show the same risk tolerance if they had the same wealth or income as men.
The social role of women, which can be viewed from different perspectives, is related to economic reality. One factor that shows up across nationalities, cultures and financial sectors is a difference in financial behavior, attitude to finance or preferences. Developed over many years for a previously male-dominated customer base, the financial services are cloaked in legal, mathematical and technical detail. Reaching the large female market requires a rethinking of the approach. Financial decision making is also influenced by cultural and structural inequalities. Decision making is deep in the „socio-financial context“ of women’s everyday life and is influenced by all relevant people in the woman’s life with whom she is directly or indirectly connected. These financial dependencies and social connections are not yet considered by financial product structures and advisory approaches.
Politics and Regulation
With the implementation of MiFID II (Markets in Financial Instruments Directive) in 2018, specifications for so-called ‚Product Governance‘ came into force. This term, based on the concept of Corporate Governance, stands for a responsible and sustainable manufacturing and sales process for financial products, which should theoretically be based primarily on customer interests. The aim of Product Governance is that financial instruments are only offered to customer groups if they fit their needs. The regulation has a significant influence on the design and content of digital investing offerings in practice, standardizes the solutions and makes them comparable. Providers use questionnaire categories required by regulation to determine the investor profile and derive the investment proposal: investment goal, investment horizon, investment amount, risk attitude and financial situation. There are currently no individualized investment proposals based on gender. This means that men and women receive the same investment proposal for the same entries. This ‚gender-neutral‘ approach sounds advantageous at first, but neglects the financial realities of women and their effects. The standardized approach can therefore be described as ‚gender-blind‘. In the worst case, women are affected by an automatic bias and due to their financial situation regularly receive more conservative investment proposals than men because, for example, possible wage differentials are not simulated and taken into account when proposing a financial instrument or portfolio. Gaps in wages and assets make it seem sensible to generate more returns by consciously taking on more risk. From this point of view, the general assumption that women are more averse to risk than men seems paradoxical.
Therefore, to break down barriers to inclusivity, close collaboration with regulators and politicians to address issues is necessary. Policies to break down barriers for women should be integrated into national financial inclusion strategies. These include advanced infrastructure, consumer protection, industry awareness and developing the skills of female customers. Politicians and regulators can see financial inclusivity as a consumer protection task. Regulators should also discourage market practices that could disadvantage women, such as gender discrimination in access to credit. Regulations should encourage the collection, aggregation and use of gender-disaggregated data on both supply and demand sides. This would help assess women’s needs, their usage characteristics, their level of access and evidence of policy impact. They should also consider anti-bias regulations such as B. the obligation of institutions to check data and underlying algorithms.
Taking into account the knowledge of the historically male character of financial products and the symptom that women invest less than men today, despite simplified digital access, there is a lack of studies that do not reduce the investment behavior of women to a comparison with the investment behavior of men, but focus on women and consider investing in the context of the use of digital products along the investment process, making it more tangible in practice. It would be a wrong conclusion to think that the solution lies in the sole development of a women’s product for all women. Rather, individualization using technology can be used to optimize the product range for all customers and make it more inclusive. Investors are best served by focusing on their specific needs, concerns and goals rather than solely on gender.
A gender-intelligent value proposition and better integration of women requires an innovative, data-driven approach to identify the obstacles women face, to create suitable solutions for the special moments in life and to integrate the life context of women along the customer journeys into the digital products. All kinds of biases must be dissolved, including data biases and machine learning biases, that alienate and discriminate against sections of society, including women. What would a financial services industry built by an intersectionally diverse team look like? The industry of the future could operate in harmony with society, instead of benefiting only a few but being destructive or limiting for many. Gender equality is a good starting point for the financial services industry and the industry is a good place to start due to the power and influence of the industry.
P.S.: Even if this article focuses on the binary genders, it should not be forgotten and therefore should not go unmentioned that genders are more diverse in reality.
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About the author
Christin is a trained Bank Clerk and after completing her Bachelor’s Degree in Business Administration she worked for Management Consultancies in Financial Services supporting banks in the development of digital investing products, services and processes. As a Product Manager of a Private Bank she was responsible for the design and implementation of product-related projects, controlled product development as a Product Owner of a Robo Advisor and managed for a short time a product team in the early stages of a Neobroker. Since completing her Master of Science in Digital Innovation and Business Transformation, she is involved in teaching and research and primarily investigates the design of digital investment offerings. Her research interests lies in digital investment advice, with a particular interest in gender and the interaction between digital products and their users.