COLUMN-How ING uses nudging to mitigate risk

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Commuters walk in to London's financial district during the morning rush hour.

Humans are not as rational as we think we are. Rather, we are social creatures who want to belong, and use more mental shortcuts, such as rules of thumb, than we think or expect.

The financial crisis of 2008 led banks to consider the impact of human behavior on performance and integrity. Within the financial industry, it is increasingly acknowledged that behavior can be a root cause of problems affecting operational outcomes. A few banks address behavioral shortcomings by focusing on mental shortcuts, biases, and other potentially problematic thought patterns.

Based on these insights, Dutch bank ING put behavioral risk firmly on their agenda by adding a Behavioral Risk Management team to their Global Risk organization in 2018. The bank intensified this approach following its settlement with Dutch authorities that year for anti-money laundering (AML) deficiencies.


In taking its role as a gatekeeper for the financial system seriously, ING has been exploring innovative ways to improve its know-your-customer (KYC) processes by applying behavioral science in a banking environment.

Behavioral risk occurs when behavioral patterns contribute to the root causes of financial and non-financial risk in the organization, such as ineffective collaboration between teams or taking insufficient ownership. Behavioral risk is less tangible than other types of risk. It stems from an organization’s working habits and the invisible factors driving them, such as group dynamics or beliefs.

Distrust between different departments, for example, can produce inappropriately aggressive communications and an unsafe atmosphere that deters healthy inter-departmental challenges.

Acting on behavioral risk requires an understanding of why people behave how they do. We must first identify drivers of problematic behavior before we can correct them. Once we understand why people behave the way they do, we can find ways to encourage them to do things differently.


The work carried out by ING’s Behavioral Risk Management team is twofold. First, an assessment team systematically detects impeding behavioral patterns and risks, then an intervention team mitigates on the findings of that assessment. Mitigation of behavioral risk happens in many different forms and is tailored to the patterns and risks that have been identified in a specific assessment.

ING’s behavioral risk management process uses an innovative way to change behavioral patterns by using nudges. This means breaking through habits – without limiting, penalizing, or forcing employees into certain behaviors. There are many well-known examples of applying nudges in real-life settings, such as displaying arrows on subway platforms to guide riders to the right exit. ING is the first known bank to apply behavioral insights in one of the core processes of the business: know your customer (KYC).

Know-your-customer (KYC) is the process by which bank employees verify the identity, suitability, and risks involved in building or maintaining a business relationship with a customer. Knowing who banks do business with helps protect them and other clients and is fundamental to their role as gatekeepers of the financial system.


In applying nudging to its KYC process, ING’s team builds on the work of behavioral scientist and Nobel prize-winner Daniel Kahneman.

According to Kahneman, people use a two-system way of thinking. System 1, the “fast-thinking system,” is automatic, intuitive, and effortless. It is why people stick to habits and use mental shortcuts. System 2, the “slow-thinking system,” is reflective, deliberate, analytical, and conscious.

People generally consider themselves rational, believing they spend most of their time engaged in slow, System-2 thinking. In reality, however, people spend most of their daily lives – 98 percent of the time – engaged in fast, System-1 thinking. This is even more the case when people are under stress or pressure, such as when they have ambitious targets to achieve.

So, if it comes to changing behavior, System 1 (fast thinking) is the main target area. For behavioral change to work, however, we cannot rely solely on people’s intrinsic motivation or willpower – for example, consider the high failure rate of most weight-loss diets. Despite people’s desire for diets to succeed, they often require help.

That is where nudging comes into play. ING based its system on a scientific understanding of how the brain functions with regard to shortcuts, mental models, and biases. Each of these have a function. They save time and energy.

People need their automatic brain functions to be efficient and effective, yet the automatic brain is challenged complex decisions and dealing with new situations that deviate from our routines, such as making complex KYC risk judgements.


Nudges are subtle triggers that change people’s behavior in a predictable way by triggering the fast, System-1 brain. They can steer people in the right direction and encourage desired behaviors by making them part of people’s everyday work.

Based on identified high-risk behaviors and their underlying drivers, ING’s Behavioral Risk Management team can decide to organise a so-called “nudge lab”. During these labs, the team helps employees explore their behavioral biases and co-creates simple, yet innovative nudge solutions together.


One of ING’s behavioral risk assessments showed that not all stakeholders in the know-your-customer process perceived KYC as a common challenge, which resulted in suboptimal communication and status differences between departments.

During a nudge lab, the Intervention team tried to grasp these findings in a systematic and constructive manner together with the business. With the support of behavioral experts, all relevant parties reflected on the uncovered challenges. This helped them understand there was, in fact, a common challenge, which they – without knowing – achieved together.

This mutual effort can and should be acknowledged more consistently. Accordingly, ING prepared a celebratory report for the team, emphasising its joint achievement in improving KYC performance.

There were different behavioral insights at play in this solution, such as ‘sense of progress’ and the ‘peak-end rule,’ the latter of which explains how people remember past events. Both the intense (i.e. peaks) and final (i.e. end) moments are weighted more heavily in the mental calculation of the overall experience. The result? Greater collaboration and cohesiveness between departments and a more enjoyable process.


Another case uncovered that some employees did not always know with whom they collaborated on the other end of the value chain.

Different departments were concentrated on their own tasks and had difficulty understanding the tasks and needs of others, resulting in an us-vs-them dynamic. To lessen this, ING’s intervention team brought together different departments and guided them toward a solution by providing behavioral expertise.

For instance, a behavioral bias that explained the us-vs-them pattern was the ingroup-outgroup bias, a phenomenon whereby people prefer their own ingroup over outside groups. Outgroups can even be threatening to ingroup members.

To address the ingroup-outgroup bias, the departments invented an interactive email signature banner to bring their mutual group identity to life. This produced more positive, less frequent email exchanges, while increasing trust between departments.

Nudge-lab created solutions are piloted locally for several weeks, followed by an efficacy-based decision between the business and Behavioral Risk Management team on whether to scale them up.

The nudge solutions described here are still in the process of scaling-up. Implementing nudges for existing processes is an easy and cost-effective way to change behavior. After all, it is not that people lack the desire to change – they just need a little nudge.

(Mirea Raaijmakers is the Global Head of Behavioral Risk Management at ING[]. Nikki Isarin works as a Behavioural Change professional at ING.)

This article was produced by Thomson Reuters Regulatory Intelligence - - and initially posted on Nov. 3. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters