By Hossein Rahnama, Founder and Chief Executive Officer, Flybits
Personalization is quickly becoming the benchmark for effective ways to attract and maintain the attention of prospective consumers. It is a principle that financial institutions know will be important as they move forward. Technology has helped some financial institutions adopt a more personal mindset, while others have placed too much focus on the technology itself. Consequently, these institutions have lost sight of what matters most: the customer.
Personalization in banking is about positioning products as a way to help consumers achieve an objective, such as early retirement, a honeymoon trip, a mortgage. Luckily, financial institutions are rich with customer data that connects their core services with adjacent verticals and ecosystems, such as accounting, financial education andloyalty discounts, to show how they benefit consumers more holistically.
There’s no question that technology simplifies the delivery of many services, but services do not create loyal consumers. People do, which is why financial institutions need to make customers the focus of their offerings.
Think beyond products
In the race to digitize products and stave off big tech, financial institutions are leaning on their resources to achieve personalized customer engagement. Equipped with data and a host of algorithms, banks assume that they are doing enough to personalize their customer interactions. But is that true?
Commonly, financial institutions take a centralized approach to creating personalized experiences, using the data and algorithms they have on hand to assess a customer’s needs and offer tailored products and services. However, a more decentralized approach through the use of application programming interfaces (APIs) has become prevalent with financial institutions. This strategy enables banks to leverage information from many sources instead of a single data source. With more data on hand, banks are better positioned to provide more personalized experiences, services andproducts that are distinct from those of their competitors.
For instance, consider a young entrepreneur who has opened a business account with a bank. A centralized financial institution will look at the accountholder’s demographic and background before offering a competitive credit-card rate or ETF (exchange-traded fund) access. Meanwhile, a decentralized institution that values personalization could connect that same entrepreneur with like-minded business leaders, financial mentors andeven prospective customers to provide a tailor-made experience.
This is the next generation of personalization that consumers are quickly coming to expect. Banks can connect individual consumers with the tools and resources that they need while benefitting everyone. In the coming years, the financial institutions that can facilitate the exchange of knowledge and expertise—while serving as intermediaries of more than just money—will be poised to thrive. But what does it take to get there?
A new mindset
When segmenting consumers, financial institutions still primarily focus on demographic information and financial data. Namely, they leverage customer checking and savings accounts to identify additional products to offer those individuals.
This is the issue a group of students at Ryerson University in Toronto confronted when studying banking apps from major financial institutions, including Bank of America, TD Bank andWells Fargo. The group concluded that despite small differences in each app’s look and feel, none offered a particularly differentiated experience in terms of functionality. Each app was essentially a digital money counter.
As such, the students re-imagined how institutions might incorporate personalization into their mobile experiences. The ideal user interface, they found, might look like a map resembling a tree that grows as users experience significant life events (e.g., college acceptance, marriage, having children).
To build an app that can stand out from the crowd, banks must think differently about consumers. Unfortunately, unlike industry disruptors, legacy banks face inherent obstacles and are used to incremental innovation preceded by cautious investments in technology.
This approach has worked historically, but modern commerce is characterized by speed and the ability to adapt to a rapidly changing world. Here’s how banks can get there:
Integrate data into design. Building customer-centric applications requires vast amounts of customer data. It also requires banks to treat customer privacy as a top priority. Financial institutions can establish themselves as trustworthy by leveraging their expertise without exposing consumer information. Showing a real concern for customer privacy can help banks gain and maintain that trust.
Identify relevant use cases. While banks should look to offer value that extends beyond traditional banking functions, they should also be realistic and strategic about where they choose to compete. Consider this real-life example: An entrepreneur approaches his bank seeking a Series A investment, which is a service line that the bank says it does not offer. Instead of turning him away, this institution facilitated a connection between the entrepreneur and some high-net-worth individuals so that the entrepreneur could pitch his idea to several potential investors.
This interaction benefited everyone, with the bank serving as the catalyst for the connection. Soon, automation will make this process scalable. Many banks already have the trust of consumers, and that trust can be leveraged to create new generational network effects.
Leverage core assets. Banks today are not just worried about small tech-driven disruptors—they are also concerned about tech giants. In theory, companies such as Google, Facebook and Amazon have enough customer data to build their own financial services. What they lack, relative to most banks, is trust.
Banks have been, more or less, responsibly and reliably handling consumer funds for centuries. While tech giants can disrupt banking’s current status quo, banks can leverage the faith that users have in them by using digital practices to modernize their trust-building methods. Whether that’s building proprietary software or partnering with fintech solutions, trust is an asset that banks can continue to highlight in distinguishing themselves from big-tech challengers.
Make personalization an interdisciplinary initiative. Personalizing customer experiences is not simply a digital or IT (information technology) imperative—it’s also not just a marketing tactic. Personalization should be a horizontal approach that affects every aspect of a business. The digital unit should not be a single, distinct entity within the company. Instead, every unit should have a digital mandate.
Banks aren’t software developers, and technological innovation is not woven into the DNA of most financial institutions. The leaders of these institutions should strive to think and view the world in the same way that tech companies do. Banks that adopt this mindset will evolve, and those that resist will get left behind.
Spread domain expertise. In most banks, domain expertise is split up by units. If the mortgage or lending unit, for example, wants to run a social-media campaign, it will rely on the digital or social-media team to handle the task. But to take advantage of newer personalization tools, expertise must be shared.
The value of the technology—and its various use cases—should be communicated across business units. Silos render personalization efforts far less effective than they could be. Tellers, for example, must be aware of marketing messages their consumers see on social media or via direct mail. Those messages, in turn, must reflect what the bank chief executive officer says during an earnings call.
Financial institutions should not treat personalization as a surface-level initiative. For it to have the full effect on consumers that it can, personalization should be a decentralized business initiative that banks embrace at every level.