Banks have been targeting customer micro-segments and tailoring offers to them for decades. These capabilities, until recently, have been sufficient to help banks differentiate their institutions, build customer engagement, and gain competitive advantage. But this advantage is eroding. Banks are being leapfrogged by retailers and tech-savvy companies that put personalization at the center of their business models and successfully scale it to achieve significant performance gains.
The true promise of personalization is being able to go beyond next-best offers and targeted marketing and create more customized, relevant end-to-end experiences for customers. In order to achieve this banks must understand what is personalization, what it is not and forge a strategic agenda to scale it.
What personalization is not?
Although personalization is gaining traction, a definition has yet to be widely accepted. The erroneous descriptions that we have seen include segmenting product offers, customizing homepage messages, and digitizing the customer journey. All of these are critical to enabling personalization, but they are not equivalents. Furthermore, delivering unique customer experiences in both digital and non-digital channels (once they slowly circulate back into usage) is even more critical to survival post COVID-19.
True personalization is grounded in developing a deep understanding of each customer’s unique needs and orchestrating a set of tailored experiences across digital and human channels. A similar approach might be taken by skillful chef who recommends the main dish on the basis of a customer’s tastes, mood, and resources. Personalization potentially creates a win-win scenario for banks and the customers they serve.
What is personalization?
Personalization in banking is not primarily about selling. It’s about providing service, information, and advice, often on a daily basis or even several times a day. Such interactions, as opposed to infrequent sales communications, form the crux of the customer’s banking experience. Yet many banks still tend to focus their personalization efforts on the sales arena.
In practical terms, personalized banking means delivering the right individual experience through the right channel at the right time. Winning banks can rebuild trust and enable deeper and more beneficial financial relationships by using a simple equation:
Frequency of interaction x the wow factor = trust *wow factor = impact of each interaction
This equation can be substantiated through Accenture’s 2019 Global Financial Services Consumer study that mentions two critical components are needed for personalization (1) customer insight and (2) customer trust.
Although banking products are relatively infrequent purchases, many people do interact with their banks often by using a mobile app on a daily basis. This dynamic creates an opportunity for banks to have personalized interactions that are contextually appropriate, relevant, and valuable.
Personalization at scale demands recursive learning, a single view of the customer, and a personalized curriculum (a sequence of interventions that are intended to change a customer’s behavior). These must be leveraged across all channels, products, and services.
Has anyone got personalization right?
Boston Consulting Group (BCG) estimates that for every $100 billion in assets that a bank has, it can achieve as much as $300 million in revenue growth by personalizing its customer interactions. So, has anyone really managed to get personalization right? The answer, not really, but there has been significant progress by some:
- Bank of Ireland has been merging online and offline data to boost customer engagement. Having taken a leaf out of tech giants’ book, it started using tagging and tracking tools to personalize e-mail messages and omnichannel branch experiences. These efforts certainly seem to have paid off: there has been a 278% bump in application submissions across digital channels. Plus displaying personalized content has helped the bank raise personal loan digital application submissions by 15%.
- HSBC has been using AI to give US credit card customers a personalized shopping experience. It’s working on a rewards program that processes customer data to predict how clients will redeem their credit card points so it can better market offerings such as travel, merchandise, gift cards and cash. The technology recommends a redemption category for each credit card holder. HSBC has sent out emails based on these recommendations, while also emailed a random category to a control group. In the former batch, about 70% jumped at the rewards and the number of opened emails rose by 40%.
- Capital One in the US has been working together with analytics platform Foursquare to develop a solution that uses location-based customer data to send out real-time mobile banking app notifications to clients who shop at partner retailers. Capital One has been reportedly beta-testing location-based offers for more than a year, with the ultimate goal of driving up adoption of its cards at selected retailers and in selected purchase categories.
- BBVA in Spain has an app feature called Bconomy, which helps customers set goals, save money and track their progress. On top of that, the app also makes suggestions about how to save money and compares prices on things like utilities and groceries. Users can also compare their spending to people like them to see if their financial activity is on track. In just three weeks, Bconomy had half a million users. BBVA and Bconomy make it easy for customers to get personalized financial advice no matter where they are.
- Sberbank in Russia uses an AI-based tool called Tips to help customers improve their financial habits while saving time and money. Tips analyzes each customer’s banking behavior to provide personalized estimates for what will happen in their future. From there, customers can set financial goals and get connected to the best products to reach those goals. The more a customer uses Tips, the better the recommendations. Tips puts everything together in one place for simpler banking.
There are several challenges banks need to keep in mind whilst managing to get the personalization concept correctly executed. These can be from managing data in various siloed systems, having the right channel to communicate with the customer, increasing usage and adoption of digital channels, and managing the segmentation dilemma. David Horton the Managing Director of Thynk Digital summarizes his view point and highlights some practical examples in his report “A Bankers Guide to Implementing Personalization.”
The Bottom Line
It is clear that personalized banking is becoming a reality, with leading banks seeking to transform how they interact with customers. Banks that achieve personalization at scale stand to make significant performance gains and create a powerful barrier to disintermediation. A new breed of challenger banks and fintechs are already making their name in the market, they come without the legacy of traditional banks and with an incredible focus on customer experience, loyalty, and personalization. Time is of the essence, those institutions that seize the challenge most rapidly and deliver true end-to-end personalization will create a significant advantage over their competitors.
About The Authors:
This article was co-authored by Ali Nanji & Hany El Gohary details of both aurthors can be found below:
- Ali Nanji – is a Senior Account Executive for Financial Services & Insurance in the UAE for Microsoft. He focuses on using technology and the power of the cloud platform to support banks, wealth managers and insurers to capture new growth opportunities, enhance efficiency and create client driven innovation.
- Hany El Gohary – is the Business Director for Financial Services & Insurance in the UAE for Microsoft. He focuses on technology consulting strategy and transformational engagements for banking, capital markets and insurance enabling his customers to innovate, transform and adopt the advantages of the cloud platform thereby supporting them to engage customers, empower employees, optimize operations and transform products.
