There is no doubt that banking is experiencing significant disruption necessitating some sweeping transformation in business strategy and operating models. Customers today demand a customized, relationship-based experience from every business they engage with, including banking. In fact, customer experience is expected to take over from product and price as a firm’s key differentiator. This leaves banks with no choice but to fast-track and finetune their hyper-personalization strategies. Yet 94 percent of banks fail to deliver true hyper-personalization to their customers.1 As competition heats up and the banking landscape gets riskier, how can banks effectively cater to a “segment of one” and retain their leadership position?
The Hyper-personalized Context
Every business has offered some degree of customization for years. But the rapid evolution of technology has created a new economy where the customer’s every need or wish is identified and addressed, sometimes even before they can state it themselves. Consider how Netflix operates. When you open the app, you are greeted with not just the shows you are in the process of watching, but recommendations based on your viewing history – a curated list of shows and movies that your viewing history indicates you may wish to watch. Amazon operates the same way with shopping recommendations based on your purchase history. It even recommends a bundle of assorted products that can be used in conjunction with the one being purchased. Customers now expect the same level of customization and relationship-based engagement from their banks. They expect banks to understand their stated and unstated financial needs and be able to offer them products, services, pricing, rewards, and bundles that can meet those needs. In the modern digital era, personalization/ personalized banking is a basic business imperative to help cut down almost 50 percent of their acquisition costs while increasing revenues by anything between 5 -15 percent.2 It can improve the effectiveness of marketing spends by 10-30 percent as well.
The Technology Layer
The question now is how do banks go about making this hyper-personalization strategy a reality? Technology of course, plays a crucial role in this. Data from customer interactions with the bank across touchpoints holds the key to hyper-personalization. Effective analysis of customer engagement and transaction data from across the banking ecosystem can reveal valuable insights into customer behavior, and even their latent requirements that the bank can then work to address. For example, a personalization solution in banking can analyze customers’ spending trends, account balances, and savings to offer credit cards with personalized benefits and rates. They can use the data collected to create personalized prices, rewards, offers, and even bundle products and services together to present a comprehensive offering that addresses the customer’s unique requirements.
The task of processing customer data is complicated by the emergence of smart devices that enable people to access their banks and financial services on demand. The prevalence of smart devices also offers an opportunity for banks to embed financial services into a customer’s life. For example, a neo bank in the UK has been leveraging Google Home to allow customers to check their balances and even make payments via voice commands. Banks could also analyze data from their customers’ smart wearables to understand metrics like location and activity to roll out credit card rewards like discounts on brands at a mall they are visiting. Evidently, this requires real-time data processing capabilities, coupled with the ability to create, and roll out personalized offerings quickly. AI based technology solutions are the answer for banks that want to implement hyper-personalized banking strategies.
Behavioral Science for a Nuanced Understanding of Customer Motivation
But technology is only one part of the journey to hyper-personalization, albeit a vital one. Customer experience is emerging to be a key differentiator for banks and customer demands are constantly evolving. Technology can deliver usable, intelligent insights to the bank to act on. But to take their hyper-personalization efforts to the next level and address customer requirements they must apply behavioral science principles to it. This will give them a comprehensive view of customer behavior and help them understand stated and unstated needs as well. They can understand the data in the context of the customers’ motivation, interests, and even personality. For example, behavioral science studies have shown that while customers appreciate choice, too many options can leave them overwhelmed. They often leave websites that offer too many options. With this insight in hand, banks can tailor their hyper-personalization strategies to provide just the right variety of options to their customers. Behavioral science also indicates that a large portion of customers prefer small but immediate benefits over long-term accrued rewards. Effective data analysis and interpretations of insights from a behavioral science point of view can help banks devise better bundles, offers, and rewards that make sense for every kind of customer.
Investing in Robust Technology Platforms
Most traditional banks are privy to a gold mine of customer data. Yet they are not able to leverage this data efficiently for driving their hyper-personalization efforts because their legacy technology infrastructure is not flexible or scalable enough to analyze data in real time. They also need to be able to act on the insights and quickly devise and roll out personalized pricing, bundles, and offers. This too is a challenge to achieve with legacy banking cores. Modernizing the core is an expensive and risky proposition. But the good news is that banks don’t need to completely revamp their existing infrastructure. Instead, they can implement a powerful middle layer solution in partnership with an experienced partner. This robust platform can sit over the legacy core and ensure real-time processing of customer data. It can also help banks craft personalized pricing strategies, bundles, and offers that resonate with the customer.
Banks are operating in a riskier and more competitive landscape than ever before. There is increasing pressure on revenues as customers are not afraid to switch loyalties and experiment with neo banks and fintechs. Hyper-personalization is a business imperative as banks gear up to deliver a superlative customer experience to retain and grow their share of wallet. A comprehensive strategy encompassing the right investment in technology and an understanding of behavioral science can help banks devise a winning hyper-personalization strategy with pricing, offers, and bundles that customers want.