By Mark Jackson, Head of Financial Services, Collinson
Do you remember when banking meant wasting time queueing in-branch, or poring over paper statements? Thankfully, the industry has come a long way since then. Today, managing your finances is as easy as logging in to an app; and opening an account is as simple as verifying your identity with a selfie.
Challenger banks, like Monzo, Revolut, Starling and N26, are experts at offering these carefully curatedexperiences, and digitally-engaged customers are switching to them in droves. Even the incumbents are jumping on the bandwagon, with RBS’ recently-launched Bó as testament to this.
It’s no surprise that consumers favour simple, convenient banking experiences that are tailored to their needs. Banks essentially have a choice between providing their customers with the personalised, digital-first experiences they crave, or watching them walk out the door. But how should they go about adapting their products and services? The answer lies in staying focused on the customer needs, and this all starts with data.
The data dilemma
The more data a bank can accumulate and analyse in the right way, the better they can get to know their customers – and the easier it will be to provide them with the customer experience they want.
Do customers want better foreign exchange rates? Do they need help managing their finances? Maybe they appreciate the convenience of 24/7 online support, or a travel benefit, such as airport lounge access? It’s all in the data.
However, the irony is that while consumers want personalised experiences, they are more wary than ever of parting with their data. The spate of high-profile information leaks, cyber-attacks and data misuse are hardly helping to put consumers’ minds at ease. Banks need not only protect their customers’ information, but also reassure them about their standards of securely handling data.
The most important thing is to offer customers transparency regarding how their data is processed. Customers want peace of mind that their data is stored securely and used in ethical ways for their own benefit. But more than anything, they simply want to retain a sense of ownership over their personal information. Having visibility over the data their bank has stored helps consumers feel more in control of their own identity.
The good news is that consumers are already quite trusting of banks. A recent study commissioned by Collinson showed that 68% of respondents trust the way their bank handles their data – with this figure rising to 72% amongst 18-34-year-olds.
Earning consumers’ trust is imperative in encouraging them to grant access to their data, however it’s not enough on its own. Regulations like GDPR and PSD2 have driven greater consumer understanding around the value of their personal information, empowering them to become more discerning when it comes to sharing it. Consumers expect the exchange to lead to more relevant offers, tailored promotions, or faster customer service – in short, experiences they can benefit from.
Converting insights into improvements
So long as banks can demonstrate that their data handling is responsible and transparent, the majority of consumers welcome the practice. According to the same Collinson study, 53% approve of the use of data to get more personalised benefits – and this rises to 63% amongst 18-34-year olds.
And yet, data on its own isn’t enough to deliver the sort of personalised experiences customers crave. Every bank, big and small, is already sitting on a wealth of transactional data. With the right internal structures, processes and partner ecosystems in place, this could be used to micro-segment a bank’s customer base and deliver bespoke experiences tailored to the individual needs of each cohort. It sounds great in theory, but many banks are still struggling to deliver the basics. Indeed, Collinson’s survey revealed only 44% of respondents describe their banking experience as personalised. This means that 56% are missing out on the benefits of products and services to meet their needs, and consequentially banks are missing out on opportunities to drive loyalty.
One challenge for banks is the sheer volume of data they must sift through. However, technology like Artificial Intelligence (AI) and Machine Learning (ML) can help lighten the load. AI for example can automate the otherwise unmanageable processing of data; whereas ML can detect patterns in even the most complex streams of information. Both technologies make it easier for banks to make the best use of the information available to them to maintain a customer-centric view.
Another challenge is that customer intelligence is worth little on its own – its true value isn’t unlocked until the insights are actually applied to products and services. Banks need to drill down into the granular detail of the data to determine what, when, where and how their customers are spending. This detailed understanding can shed a light on their particular needs and interests, which can then be used to build customer experiences that match them.
The courage to do things differently
On the whole, challenger banks seem to do a better job of acting on insight. According to Collinson’s survey, 77% of challenger bank customers are satisfied with the communications they receive from their bank, compared to only 62% of incumbent customers. In particular, challenger bank customers were more likely to highlight the simplicity of their bank’s communication (84%), compared to 66% of incumbent customers. This is just as true when it comes to creativity of communication, with 78% of challenger bank customers highlighting their bank’s performance in this area, compared to only 45% of incumbent customers.
In many respects, challenger banks have an advantage due to their size. Often their businesses are under a decade old, leaving them unburdened by the legacy systems and siloed data flows that their traditional counterparts must contend with. As a result, challenger banks have an easier time piecing together and making sense of their customer intelligence. And because of their agile, largely digitised set-ups, it’s much easier for challengers to adapt their products and services, or even to roll out new ones!
However, this is only part of the story. What really sets challenger banks apart is their willingness to do things differently, based on what the data tells them. Take the recent trend for financial wellbeing features. Over time, challenger banks have discovered their millennial customers are struggling to manage their finances, yet unlikely to seek professional guidance. This finding isn’t particularly ground-breaking and was likely within reach for most financial institutions. What set the challenger banks apart was their courage to act on it by introducing a range of new features.
Some challenger banks launched analytics-based budgeting features to help their customers identify areas where their spending was blowing out. Others allow customers to commit to a segmented monthly budget in-app and help them stick to it by issuing notifications as they near their budgeted spend. Others help their customers save money when travelling, or while sending money overseas, by offering fair exchange rates.
These features are designed to help millennial customers in an area where they need it – managing their finances more wisely. And challenger banks’ ability to cater to this demographic is paying off – according to digital banking solutions provider CREALOGIXs, 1 in 4 millennials have already made the switch to a challenger account.
Today’s consumer expects a personalised customer experience in all areas of their life and banking is no exception. The trend is especially strong among millennials, and the best banks understand their future depends on engaging this demographic. The key to providing these winning experiences is a thoughtful use of data. Banks need to get better at this if they wish to increase customer acquisition and loyalty and survive in the long-term.
 Research was conducted by Opinium Research on behalf of Collinson. It polled 3,084 UK adults with a bank account between 12 and 23 August 2019.
 Finance Derivative, ‘1 in 4 millennials and Gen-Zs are using challenger banks with Monzo the most popular’