In a recent speech at New York University’s Stern School of Business, Treasury Secretary Timothy Geithner indicated that a top priority of the overhaul of the financial system “will be simplifying the forms consumers have to get credit cards, auto loans and mortgages.”1 Geithner said that the government “will move as quickly as possible to bring clarity to the new rules of finance.”
Should companies in the financial services industry see these requirements as yet another regulatory hurdle that will cost them money and aggravation or does simplification of communications actually represent a potential for economic benefit? Geithner indicated that the changes would enable consumers to “make better choices, borrow more responsibly and compare costs and services,” but rigorous research at Siegel+Gale reveals the potential for significant business benefits for the lenders as well.
Siegel+Gale’s Simplicity Laboratory rigorously analyzes communications on such pillars of simplicity as comprehension, relevance, clarity, and freshness. Analytical tools such as heat mapping are used to identify specific elements of communication that induce confusion.
But the Simplicity Laboratory goes further. It also measures the extent to which reduction of complexity and confusion leads to economic benefit. A recent test of student loan application forms, for example, revealed that a 12 percent improvement on perceived simplicity of the loan application led to an uptake of a corresponding 12 percent in consumers’ willingness to actually fill out and submit the form for approval.
The economic benefits of simplicity can manifest themselves in many ways. Testing of simplified forms for the Internal Revenue Service has demonstrated that such simplification leads to both increased payment of full amounts owed and reduced numbers of calls into IRS taxpayer service lines. Tests of documents sent to customers by financial institutions revealed that simpler communications were more likely to be read and saved for future reference. In addition, simplified communications significantly improve the relationship between the institution and the customer. Those who receive the less complex documents are more likely to believe the bank values and acts in the best interests of its customers. They are more likely to find the institution to be easy to do business with, and they are more likely to remain with the bank over time.
This discussion is not meant to diminish the frustration that companies must feel with the increasing burden of Federal regulation. It merely hopes to point out that remedying much of the complexity that has led to this regulation may in fact lead to positive outcomes rather than increased cost.
1 Fredrix, Emily and Crutsinger, Martin. “Geithner pledges quick action on new financial law.” Yahoo! News, August 2, 2010
Rolf Wulfsberg is the global director of quantitative research for the Siegel+Gale New York office.