How Up Bank is building a habit forming product, not a bank… and why that’s important

7 min read

Habit forming products - Up Bank | Neobanks

You can’t discuss habit-forming products without mentioning Nir Eyal’s Hooked – How to Build Habit-Forming Products. It’s a four-step manual for product-managers and experience designers on building products that have an emotional connect with their users.

A seminal guide to habit-forming products: Hooked – How to Build Habit-Forming Products

Facebook and Instagram (or Snap or TikTok) are habit-forming products. They have a strong emotional connect with their users that results in you checking them by appointment, as well as a way to pass time. It’s safe to say these products have habitual use.

It’s probably unlikely that anyone would consider their bank a product that’s become a daily habit. A bank is a necessary part of life, but still just a utility service – like electricity and gas. It doesn’t have an emotional connect beyond that.

And likewise with banking apps. Incumbent banks don’t consider the app to be anything more than a channel through which users can access their banking services. Incumbent banking apps have the same utilitarian value as the web banking site and performs the same utilitarian banking services as a bank branch.

And that’s where Up Bank has taken a totally different approach to banking: The Up Bank app is their product. The banking services appear as almost an afterthought.

Companies that form strong user habits enjoy benefits to their bottom line.

Hooked – How to Build Habit-Forming Products, Nir Eyal

Habit Zone

Understanding habit-forming products, according to Nir Eyal, begins with understanding the concept of the habit zone. He explains the habit zone to be the place where the user is automatically triggered to reach for your product during routine events. Think: How many times do you find yourself thumbing through your timeline while waiting in the queue for your coffee order?

And the type of products that do this best are “vitamins.” When you have a headache, you grab a painkiller. Because a painkiller relieves the pain – it solves a problem. But the daily multivitamin that you (may) take isn’t actually solving an immediate problem. But you take it every day – partly so that you don’t have to face a serious problem and partly because it’s become a habit.

Instagram doesn’t solve any real pain in your daily life. In fact it doesn’t do anything more than deliver the social validation that people seek. Put another way – don’t discount vitamins because some of the world’s most valuable companies are vitamins.

When Up Bank launched, they made a LOT of noise around your being able to add emojis to your account names. Does that help you save more money – probably not. Do emojis make you a better bank – no. But it’s cute, and easy and it doesn’t do any harm. And most of all, “my current banking app doesn’t let me do this.” And that’s how you begin to get emotionally invested in the product.

Up Bank - Habit forming products | Neobanks

Eyal believes that “companies that form strong user habits enjoy benefits to their bottom line.” Up Bank are focusing their efforts on getting people emotionally invested and emotionally connected with the app the same way they do with Facebook and Snap.

And the reason habits are good for business is because they super-charge growth. Because users who continuously find value in a product are more likely to tell their friends about it.

When you’re hooked to a product, you use it frequently. Frequent usage creates more opportunities to encourage people to invite their friends and broadcast content.

And emotional connections don’t come from above-the-line advertising and big marketing budgets. True emotional connection comes from users associating the product with internal triggers that gets them reaching for the app without any external prompting.

Hooked users become brand evangelists, bringing in new users at little or no cost. Products with higher user engagement have the potential to grow faster than their rivals.

Eyal’s four-step process to get users hooked to your product, otherwise called The Hook Model, is a continuous loop of trigger – action – variable reward – investment.

Habit-forming products step 1: Trigger

The Hook Model describes the trigger as the foundation upon which a new habit is built. Triggers provide the basis for “sustained behaviour change.”

A company might have to rely on external paid triggers for their users at the start of the journey. Paid triggers, like advertising and merchandising, are effective but expensive.

Paid triggers eventually become unsustainable for most businesses. True habit-forming companies would need to stop relying on paid triggers for very long and look to leverage other triggers to keep users coming back to their product.

Users need triggers

Case in point: Up Bank asking their users to help them out with adding unrecognised merchants.

Up Bank app review

Currently, making card payments, receiving money and earning interest are the three thing that users can do with Up Bank that counts as banking services.

But they allow users to pay with your Apple Watch – an established user habit. Couple that with the Up Bank app’s request of “help us identify this restaurant” and you have an internal trigger.

After doing this the right number of times, bonds begin to form between the product and the user and this gradually becomes a habit.

Once hooked, users no longer pay attention to the call-to-action to fix the unrecognised merchant. It becomes an automatic internal trigger.

At the core of finding the right trigger to elicit the right action, according to Eyal, is simplicity.

Habit-forming products step 2: Action

“Simplicity is a lever for the likelihood of a particular behaviour occurring.” The reason for this is bread-and-butter to any product manager or experience designer: Because simplicity allows you the best shot of overcoming irrational user biases when it comes to making a decision.

The most famous example of this – and will probably be for years to come – is the Google homepage vs the Yahoo! homepage. The latter gave you options for what you might be looking for. It was a directory that told you everything they had and you had to pick. Google – we all know just had a search bar and nothing else and you enter what you’re looking for. Overcoming the paradox of choice – “there are too many options, I don’t know what to do, I’m going to leave” – won Google the web search battle.

Banking is hard

Everyone knows “banking is hard” – right? It takes forever to fill out those forms. Then you have to fill out forms, print out forms, take them to the post office for verification… I can’t be bothered.

Keeping it simple…

Case in point: The first message that a potential user sees: It’s not a bank but you get a bank account, and you are up and running in 3 minutes. Can’t get simpler than that.

There are reams of information around cognitive bias and financial decision making. The one we’re talking about here is the anchoring effect. Relying on a single piece of information, usually the first piece of information that you are familiar with to make all your decisions. In this case, banking is hard. After that we have “saving is hard.” And why do we know that saving is hard – because banking is hard. It’s money stuff, it’s too hard.

What Up Bank is doing is trying to shift that attitude. No small feat.

Case in point: Look how easy they’ve made it to save money. Spare change round ups has become a standard feature since Acorns made it so popular. Even the incumbent banks offer it as a feature now. What Up Bank did then was take a known feature and assigned it a trigger – pull to save.

I can haz savings

Habit-forming products step 3: Rewards

Users expect a reward for taking the action from the previous step. By rewarding your users, you reinforce the action and strengthen the internal trigger. This in turns ensures that the internal trigger moves closer to the habit zone.

Hooked references different kinds of rewards. The most relevant one here is the “rewards of the self.” These rewards are fueled by your internal motivation and the driver is to gain a sense of competency. Rewards of the self drive you to conquer obstacles, even if it is for the satisfaction of doing just that. It’s the whole, “Why do you want to climb that mountain – Because it’s there” situation.

Case in point: Driving your users to save more by making it as simple as “pull down to save.” Regardless of how much the user is saving, the personal sense of accomplishment that comes from that action is enough to justify the action and continue doing more of it.

And the easy-to-use feature of creating more Saver accounts does just that…

Habit-forming products step 4: Investment

“Businesses that leverage user effort confer higher value to their products simply because users have put work into them.”

Users irrationally value their own effort. This is why the more users put into a product, the greater they value it. And there is a good chance that they value if more than they should; because users irrationally value their own effort.

It’s harder to abandon Twitter after you build a large following. It’s hard to leave Facebook because of the number of photos and memories that you’ve shared on it. The more you store, the more you value the product. Couple this with the irrationally high value that you put on your effort and you have a strong bond between user and product.

And it is this bond that will result in users rationalising their habit with the product, even if there are better products out there. The best example of this is the way people stick with iPhones even after the release of Pixel (#shotsfired #damnrightIwentthere).

Tomorrow it’s going to be a lot harder for a user to leave Up Bank for another neobank, even if the next option has a superior banking service. And there’s a good chance it’s because of all the time they spent adding emojis to their saver accounts and helping Up Bank categorise and label their data.

App is the product, not the bank

Up Bank designed the majority of their app’s feature to create user habits that would hook them to the product. Their MVP couldn’t have been any leaner in terms of banking services offered. The only “bank” things you could do when the app launched was receive money, pay with your card and earn interest on your balance.

It’s a bank where you still can’t pay bills because the app doesn’t understand BPay. But you can use the Apple Watch to pay. This makes the app part of the user’s daily routine – strengthen the internal trigger.

It’s a bank where you still can’t open joint accounts. It’s a bank where you still can’t schedule payments nor make recurring payments.

But you can set emojis for your accounts and add tags to your transactions. So now, every time I make a transaction, I make sure the merchant is identified correctly. Then I tag the transaction. Trigger – action – reward – investment.

Want to flip these users: Be 9x better

“User habits are a competitive advantage. Products that change customer routines are less susceptible to attacks from other companies.”

New neobanks are now going to have to deal with the same cognitive biases.

  • Anchoring effect: Banking was hard and Up Bank made it easy. I just have to pull and save. Can this new bank do that?
  • Status quo bias: I’ve been using Up Bank for a few months now and it’s working fine. I don’t need to change.
  • Avoid cognitive dissonance: Even if the new bank offers account that have better interest rates, users likely won’t switch because they’ve invested so much of their “valuable” time in categorising merchants.

John Gourville, professor of marketing at Harvard Business School claimed that for new market entrants to stand a chance, they need to not just be better than what users currently have, they must be nine times better.

Users have demonstrated that it’s not the banking features that have to be better either. They’re getting hooked to the app, not the bank.

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