Personalized Banking: Everything You Need to Know

Personalized banking should be a big goal for all banks. This process is about getting to understand each customer’s banking needs so well that you can offer them the right product at the right time.

Truly personalized banking experiences bring financial institutions closer to their customers and drive customer loyalty at scale.

Banks have a long history of segmenting their account base and creating targeted products. Take home loans and education plans for example. These products are deeply personal for customers, but have they traditionally been personalized?

The answer is no because for too long these products have been one-size-fits-all. Recently, smart retailers and tech-enabled companies have used big data to move ahead of banks in the race to create truly personalized experiences.

These same big tech companies are using this customer intimacy to move into banking territory. It’s no surprise that Google has already launched a checking account, and others like Facebook are entering the banking space with Facebook Pay.

In this article, we will explain what personalized banking is and how banks can improve the personalization of their products. We will cover the following sections:

• What is personalization in banking
• A new approach to personalization
• How can banks achieve personalization
• The results of personalization
• Before moving ahead with personalization
• Key steps to help banks prepare for personalization

What is banking personalization

Personalization is much spoken about, but there is no true definition at present that is agreed upon by everyone.

Some banks think personalization is creating sales and marketing pitches based on traditional customer research. Other banks think it is about customizing their digital interface to include the customer’s name and birthday.

These small actions are just scratching the surface. Yes, they are part of the personalized banking experience creation process, but they are not the essence of it.

Real personalization is about getting to understand each customer’s banking needs so you can offer them the right product at the right time, with little effort from them. You need to create responsive experiences and offer accurate products across digital and human channels.

High tech disruptors like Google are already ahead of the game.

By harvesting vast amounts of customer data, it sometimes feels like they can anticipate a customer’s needs before they can. It’s not real anticipation. They have just been listening.

Likewise, banks can provide a tailor-made product at an important time in a customer’s life. This might be offering a loan for a wedding, a university course, or a sabbatical. It builds trust in a way that is not quickly forgotten.

But to do this, banks must have:

• Powerful cross-silo products
• Cross-business unit collaboration
• An integrated technology platform

But many banks do not have this because they are disconnected and operate in silos. Their platforms are legacy platforms that cannot connect with enough touchpoints to create a truly personalized experience.

One example of how banks lose personalization opportunities is when customers contact the call center looking for information on a product like a car loan. Because these calls are not looped into their CRM, banks lose the chance to use that touchpoint to build the customer’s profile.

This means they cannot use the phone call as an opportunity to vet the customer’s credit score and preemptively offer them a car loan through their digital channels.

A new approach to personalization

Personalized banking is about being so in touch with your customer’s requirements that you can provide the right product offer, through the best channel, just when the client needs it.

You need to be geared up to respond to a customer requirement even from an individual data point such as a phone call to your call center requesting an interest rate.

This is a powerful end goal.

Banks already know that the task of making it possible is enormous. Traditional banks are often saddled with legacy systems and unconnected databases that are the enemy of personalization at scale.

Banks are often a victim of their own growth. They are left with sunk costs relating to expensive systems they implemented during their growth phase. But as technology moves so fast, these legacy systems become obsolete.

Personalization, as we have seen, requires a responsive and unified system that allows banks to capture all customer insights at one time. How many traditional banks are set up this way?

If you think about it, customer touchpoints can be as varied as branch visits, calls to the call center, self-service such as ATMs, and digital banking. Creating a system that intelligently captures these signals in real-time is a massive task.

Truly personalized banking services come from cultivating a deep understanding of your customers’ needs. The end goal is trust, loyalty, increased sales, and reduced customer churn.

How can banks achieve personalization?

Banks need to integrate personalization at the early stages of the customer journey. It’s a message that must be circulated to many teams who will be involved in the initial customer touchpoints.

Teams involved in customer capture who perform roles such as prospecting, new lead engagement, and retention are the early leaders who can fill your CRM with as much valuable information as possible.

It helps to get to know the customer’s life stage, interests, and goals. What are they saving or planning for? Once this information is captured, it can be a great help when the customer makes a seemingly random request for product information down the line.

These are not the only personalization champions in an organization. All teams should be involved. If banks can onboard new staff by giving them a touchstone message about the brand’s identity, then they can just as easily preach personalization to every new recruit, regardless of their role.

It requires powerful organizational cooperation at a high level. But the results will give banks the information they need to offer a truly personalized service.

Here are some important ways for banks to scale their personalization:

• Take an honest audit of your current personalization status
• Understand what good personalization looks like for your customer segment
• Don’t wait to get started. You might have siloed information, but don’t wait for a large digital transformation project to start personalizing your approach

Technological Enablers of Personalized Banking

Banking establishments have always been competitive. In the last decade, they became even more so since a lot of other financial organizations and neo-banks started offering similar services. Their only way to stand out among the competition was by marketing and lowering prices. 

Nowadays, a new approach appeared — personalization bordering on hyper-personalization. A Deloitte report has shown that customers demand the same level of immediacy and personalization from banks as they receive from other services. The way to do it? Utilizing technological enablers like artificial intelligence (AI) and machine learning (ML).

The rapid development of AI and ML has already revolutionized fintech, including the banking sector. We can already see their effect on banking personalization — AI uses enormous amounts of big data on customers to analyze them and offer personalized services. Personalized banking solutions can be achieved using a few main technological enablers:

• Big data analytics is used for collecting, processing, and analyzing large amounts of information. In the banking sphere, it can be customer data, market info, competitors analysis, etc. By using algorithms to analyze this data, banks can detect patterns in consumer behavior, predict banking trends, and utilize them for their benefit. They can offer an improved personalized banking experience by introducing targeted marketing campaigns, customized financial advice, and product recommendations for their clients.
• Artificial intelligence is the technology that powers such data analytics. But it certainly does more than that. Besides analyzing vast amounts of information and predicting trends and anomalies, they can actually work with bank clients in real time. AI-powered chatbots have already been introduced in a lot of banks, providing customers with personalized assistance and resolving their issues at any time of day and night.
• Machine learning and predictive analytics can be used to teach specific AI technology on client files and the information banks possess. By doing this, a bank can teach its own machine to predict the trends, help clients with investment strategies, know when to invest or withdraw funds, etc.

The possibilities for using these technologies for personalized banking are limitless! Banks that don’t take advantage of them might find themselves without clients very soon.

The Importance of Cybersecurity in Personalized Banking

With big opportunities come big risks. That’s why, with increased banking personalization and digitization, the cybersecurity risks also increase. Since banks store very sensitive data about their customers, they are prone to cyber-attacks and hacking. The latest geopolitical events also add to the risk. According to a recent KPMG study, 81% of bankers expect increased cybersecurity threats and are committed to investing in building cybersecurity protection infrastructure.

On one hand, investors, stakeholders, and regulators increasingly demand clear and transparent communication on the safety measures that banks are implementing. Personalized banking solutions give space for a number of errors and threats. So, it’s crucial to understand which factors can financially hurt the banking institutions to prevent or mitigate their effect.

On the other hand, customers, knowing the level of sensitivity of the data banks store, also demand the protection of their personal information. With the implementation of personalized banking, banks know everything about their clients, including financial transactions, personal identifiers, and behavioral patterns.

The information used for providing the personalized banking experience can also be used for unauthorized access, identity theft, and financial fraud. A breach of customer data can have severe consequences, including financial losses, reputational damage, and legal liabilities for banks.

So, how can banks protect themselves? The simplest list of the necessary measures includes:

• Encryption of sensitive data at each stage of its collecting, processing, and storing.
• Control of access that includes mandatory authentication protocols, role-based accesses, and different access levels to the sensitive data.
• Employee training — teaching the personnel about the cybersecurity measures they need to implement and maintain.
• Regular cybersecurity audits and penetration testing to make sure the systems are protected against hacking.

These measures are only the beginning of the cybersecurity protocols a bank needs to implement, but they will be enough to protect valuable information from a substantial number of threats.

Personalized Banking Initiatives: Key Metrics for Assessing Impact and Success

Although personalization in general and personalized banking in particular are big hits nowadays and around 90% of decision-makers say personalization is imperative to their overall business strategies (according to the Forrester survey), only a few of them can actually quantify their efforts. According to the same survey, only 30% of companies feel they have the right metrics in place to measure the success of their strategies. As we can imagine, for banking personalization, these figures are even smaller.

When tracking key success metrics, a few businesses come as far as net promoter score (NPS), which determines the overall customer satisfaction with the services and the likelihood of them recommending such services to friends. However, there are a lot more metrics that can be required to measure the client’s personalized banking experience. Such metrics can include:

• Customer satisfaction score that measures the customers' satisfaction level from the provided services.
• Customer retention rate that tracks the number of clients who continue to use personalized banking solutions over time.
• Customer lifetime value — how long a customer stays with the bank and the total revenue they bring to the bank during their lifetime.
• Service usage frequency — how often the client uses the bank’s services and personalized features.
• Feature adoption rate — identifying the percentage of clients that have adopted personalized features.
• Cross-selling and upselling metrics — measuring if personalized offers helped sell additional products to customers.
• Sentiment analysis — analyzing the customer’s feelings about the bank expressed in social media, reviews, and other online platforms.
• Surveys and feedback forms, where clients can directly respond to specific questions about banking services and their experience within the bank, etc.

There are a lot more such metrics that can be used to quantify everything — from the average check to customer loyalty to chances of bringing additional clients. These metrics are key to implementing personalized banking strategies correctly and effectively.

The results of personalization

Banks should get into the habit of trying to understand what their customers need according to their life stage. This fits in with the fundamental ideals of personalization.

The Royal Bank of Scotland recently introduced a powerful data-driven personalization campaign called “Personology”. The campaign is run by a powerful analytics team and is intended to reconnect the bank with its clients.

What is the end goal? Well, using detailed customer data, banks like RBS are using technology to understand what their customers will need according to their life stage. This puts them in the right space to proactively offer highly useful products.

According to research by BCG, for every $100 billion in assets owned by a bank, it can use personalized customer experiences to achieve as much as $300 million in revenue growth.

There has never been a bigger incentive to get into the personalization race. As to be expected, banks that are first movers will get a competitive advantage over rivals.

As mentioned, personalization is about offering customers the right product at the right time, in such a way that the client feels they are not doing any of the work. The key is to build trust by actively boosting powerful interactions with customers.

Digital interactions are at the heart of this journey. Users interact with their bank via their mobile app on a daily basis. This gives banks many opportunities to offer personalized offers that are relevant and meaningful to the customer according to their life stage.

Before moving ahead with personalization

Many studies show that 91% of consumers are more likely to shop with brands that recognize, remember, and provide relevant offers and recommendations.

Banks should understand that we are in the digital age and they must leverage off of that to maximize on the functions of digital tools. Personalization is not about gimmicks like simply remembering a customer’s birthday.

Banks need to carefully watch the customer journey to monitor their purchase history and behavior. They need to be able to answer questions like:

• What are their buying patterns?
• What are their preferred channels of communication?
• What information do they look for?

It’s clear that if banks know a lot about their customers, then creating marketing materials with the correct roadmap will be so much easier. 

There is a right way to use customer insights. Being ahead of the game and not exposing customers to repeatedly asking the same questions or going round in circles is very important. It cannot be repeated enough that banks should leverage the best of technology. 

Super apps like Alipay combine financial and social functions in a single app. The success of super apps is a test case that you can make it easy to sell to a customer if you know a lot about them because they frequently use your platforms.

Some banks are using personalization principles to offer unique features according to their customers’ life stage. Knowing that their young and socially active customers are likely to enjoy such services, Monzo offers useful personalized features such as splitting the restaurant check. It’s these supremely helpful touches that will set service providers apart.

Key steps to help banks prepare for personalization

As we head into a space where banks compete on personalization, the best banks that leverage on items like high-end analytics and machine learning are going to best uncover customer spending habits to create differentiators. Here are some of the best ways to prepare for this journey:

• Get your banking system in shape. This is much easier said than done. Legacy systems and digital transformation is one of the biggest sources of debate in a bank when they look at the cost benefit analysis of making a change.
• It’s important to note that if banks cannot get the green light on a big system upgrade or change, they can still aim for increased personalization, but they will be doing it manually and they will only fall behind over time.
• Be smarter about uncovering information about your customers in real-time. This is almost always an immense task that requires banks to integrate huge amounts of data and make it meaningful and insightful. 
• Choose a system that is future facing. It’s advisable that banks must prepare their systems to be far more sense-making and responsive so they can generate useful insights at scale and speed.

Conclusion

Personalized banking is coming into the mainstream as banks jostle for position in their segments. Creating a strong personalization suite of tools is a powerful driver of loyalty and is a defense against competitors taking market share.

If the best banks can achieve personalization on an end-to-end basis, and at scale, then they will be in a strong position. There is a large opportunity for banks to integrate their customer data, operational data, and advanced analytics to create a strong personalized slate of tools and features.