Digital banking concepts are changing the way financial institutions engage with customers. One of these trends is banking personalization. The days of one-size-fits-all financial products are numbered. Here is why and how.
Driven by data
Personalization with digital banking starts with customers’ data. Because of the nature of their services banks have some of the most intimate information on their clients. In addition to age, location, income, and other demographic data banks can track users’ transactions and spending. Analyzing this data reveals many behavior trends, such as a customer’s expenditure patterns, investment profiles, and preferences for digital versus physical interactions. Hyper personalized banking uses real-time data combined with artificial intelligence (AI) to deliver products and services that are far more relevant to consumers.
Traditional banking processes have given way to digitization. Investment banks and insurance companies have digitized most of their products and services. Tech firms such as Google, Microsoft, Amazon, and Facebook are expanding into the financial services arena. Customers have become accustomed to having 24/7 access to banking. Digitalization is changing the way financial service providers interface with customers. In the past customers had to physically go to banks, wait in queues, and interact with bank employees. Today the same banking services are available on mobile apps. There is no need to step out of the house and brave the elements for one’s banking needs. Digital banking dispenses with queues, language barriers, ambiguity, and information asymmetry. Customers are no longer dependent on the banks’ working hours.
Banks also make the most of digitization by sending digital notifications, such as when a mortgage payment becomes due. Product promotions and investment advice have gone digital too. It is much easier for banks to personalize digital products and services. Digitization is what really opened the door to personalization in banking.
In banking and fintech AI is considered a necessary enabler for personalization. Banks can create personalized products using AI tools spearheaded by firms such as Personetics, Digital Reasoning, CogniCor, and others. AI systems use machine learning algorithms on large sets of customers’ data. These systems iteratively improve the features of banks’ products and services. This process greatly improves the probability of the products matching customers’ needs. AI programs continuously read, store, and analyze customer interactions to make better product suggestions. Every digital platform that a customer uses is a data stream. These include online transactions, mobile banking, and app-based interactions.
Another aspect of personalization in digital banking is the use of AI-powered virtual assistants. Bank of America, Capital One, and others employ AI chatbots to help customers with a variety of tasks. Chatbots are available 24/7 to give personalized service and advice on a range of banking topics.
Personalization increases customer engagement. For instance, in the past a customer looking for a home loan would visit several banks. All offerings would be more or less identical. The decision would often come down to subjective personal preference. Today a customer can get a highly personalized quote without leaving the comfort of her living room. The bank can review past data to instantly evaluate the customer’s credit worthiness, income, spending patterns, and so on. The bank need not ask the customer for extensive documentation. An AI-based program can assess the value of the relationship the bank has with this customer. It can then create a personalized loan offer based on the terms that would suit the customer best. Such personalized products dramatically increase the probability of retaining and delighting customers.
Personalization in the remittance industry is nascent. All vital ingredients including digitization, real-time data, and economies of scale are present. The use of app-based remittance transfers is exploding. Today more people send money online than offline. With new fintech players entering the domain the stage is set for the introduction of personalized services in remittances.
The future of banking
AI-based programs can personalize most financial products and services. Apps can help personalize the user interface and experience. Many of us think of personalization as merely a useful addition. However, tailor-made services will constitute many customers’ first experiences with banking. These younger customers may never want to visit a bank in their lives. Today’s luxuries will be tomorrow’s necessities. Personalization is quickly becoming the norm in digital banking.