5 min read

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Apr 13, 2025

In 2021, Nigerian fintech startup Cowrywise introduced a savings feature called "Circles," allowing users to save collectively with friends and family. This innovation transformed an otherwise solitary act into a shared experience.

According to Cowrywise's internal reports, users who saved in Circles showed a significant increase in deposits compared to those saving alone, highlighting the power of social influence in financial decisions (Cowrywise, 2022). This approach not only boosted deposits but also enhanced user retention and word-of-mouth referrals.

What changed? Cowrywise leveraged behavioral psychology—the science of how people make decisions.

In the world of Fintech where users often switch between apps and churn is high, understanding the human brain offers a competitive edge. Whether you’re a B2C fintech brand helping users save money, build credit, or invest, integrating behavioral insights can dramatically improve how users engage with your product—and whether they stay.

This article breaks down exactly how behavioral psychology drives engagement and retention in fintech—and how your brand can apply it.

Classical economics assumes people make financial decisions logically. However, money is deeply emotional. Behavioral psychology shows that most financial decisions are shaped by:

- Loss Aversion: People feel the pain of loss twice as much as the pleasure of gain (Kahneman & Tversky, 1979).

- Present Bias: We value immediate rewards over long-term benefits (Laibson, 1997).

- Status Quo Bias: People prefer to do nothing or maintain current behavior (Samuelson & Zeckhauser, 1988).

- Cognitive Overload: Too many options can lead to decision paralysis (Iyengar & Lepper, 2000).

For fintechs, this means a well-designed product must not only function smoothly but also account for—and counteract—these cognitive biases.

Most fintech products are built around functionality: "Can users create an account? Transfer funds? Open a savings goal?" But behavioral psychology asks: "What will make users want to do this repeatedly?"

A. Default Settings

Defaults are powerful. In one study, changing a company’s retirement savings option from opt-in to opt-out boosted participation from 37% to 85% (Thaler & Sunstein, 2008).

Fintech Application:

- Set auto-savings ON by default.

- Set round-up features or recurring investments as the norm.

- Make "best-practice" options the easiest to select.

B. Commitment Devices

These are tools that help users stick to future goals. For example, PiggyVest allows users to lock funds until a specific date—a clever nudge for long-term savers (PiggyVest, 2023).

Commitment devices appeal to users’ desire for control and discipline, bypassing the impulse to spend.

C. Chunking and Framing

Small language tweaks drive action. Saying “Save ₦500 daily” feels easier than “Save ₦15,000 monthly,” even though the amounts are the same (Gourville & Soman, 2002).

Framing helps users visualize success and reduces friction around decision-making.

Money is deeply social. Behavioral psychology shows we’re more likely to act when we feel seen, supported, or challenged.

Examples:

- Cowrywise Circles taps into peer accountability.

- Kuda’s Spend & Save feature makes saving a visible part of everyday transactions.

- Acorns’ referral challenges turn saving into a game.

Fintechs can drive retention by weaving social validation into the product journey:

- Show what “people like you” are doing.

- Highlight progress streaks and shareable milestones.

- Use micro-rewards to celebrate good habits (e.g., badges, emojis, public streaks).

Reduce Friction: Every Click Matters

Cognitive overload kills retention. Fintech apps often overwhelm users with too much data, too early. Behavioral psychology suggests simplifying steps is key:

- Break onboarding into micro-steps.

- Reduce forms and remove non-critical fields.

- Use progressive disclosure—show info only when needed.

Example: The app Cleo uses a chatbot-style interface to make budgeting feel like a conversation, not a chore. That design choice—rooted in psychology—dramatically lowers user friction.

Build Habits Through Nudges A “nudge” is a small prompt that guides behavior without restricting choice. Fintechs use nudges to build habits:

- Push notifications to save, invest, or check goals.

- Weekly or monthly email reports that highlight wins.

- Gentle reminders when users miss a savings goal.

But timing is everything. Bombarding users with irrelevant nudges leads to churn. Use data to send contextual, helpful nudges that match behavior.

Use Behavioral Segmentation, Not Just Demographics

Behavioral psychology lets you group users not just by age or income—but by their mindsets and habits.

Example Segments:

- "Overwhelmed Optimists" – Want to save, but don’t know how.

- "Micro Managers" – Want control over every transaction.

- "Gamified Goal-Getters" – Thrive on progress tracking and rewards.

Tailor content, dashboards, and journeys to each segment. A blanket experience leads to user fatigue. A behavioral one? Loyalty.

Real-World Examples: Fintechs Getting It Right

A. Chime

Chime’s early direct deposit feature plays on anticipation bias—users love getting their money “early,” even if it’s just a day or two. This builds loyalty.

B. Yotta

A gamified savings app, Yotta gives users lottery tickets for every dollar saved. It appeals to the same dopamine loop as gambling—but rewards saving.

C. Kuda

In Nigeria, Kuda combines frictionless banking with subtle nudges. Budgeting tools, auto-saving, and gentle prompts all rely on psychology to drive stickiness.

You don’t need a behavioral science degree to implement this. Here’s how to start:

- Run a Behavioral Audit: Map every step of your user journey. Where do people drop off? Where are decisions hard?

- Redesign Just One Flow: Pick one area—onboarding, savings, or referrals. Apply a single principle: nudges, framing, defaults.

- Test and Iterate: Behavioral changes aren’t “set and forget.” Test variants, track retention, and keep improving.

Behavioral psychology isn’t a trend. It’s the foundation of how people make financial decisions. And for fintechs, applying it isn’t optional—it’s essential.

When users don’t feel overwhelmed, when goals feel achievable, when money feels like progress—not punishment—that’s when they stay. That’s when they refer their friends. That’s when they fall in love with your product.

Fintech is ultimately not just about tech or money. It’s about trust, belief, and behavior. And behavioral psychology is the bridge between your app and your users' success.