President of Americas at Personetics, the global leader in data driven personalization and customer engagement for financial institutions.
The current health crisis continues to disrupt the banking industry’s financial outlook, precipitating lower lending revenues and escalating credit loss provisions. One of the few levers the industry can turn to is cost containment. Amid an overall reduction, however, investment in digital capabilities continues to accelerate to meet customers’ rapidly evolving preferences toward digital servicing, support and advice.
To better prepare for this future, forward-leaning banks are capitalizing on their greatest asset — customer data — to better “know” their customers and deliver personalized experiences. Data-driven personalization appears to be at a tipping point, accelerated by the actions of leading banks and the growing body of evidence that these solutions are being embraced by customers and delivering strong returns for banks. Given the rapid adoption in the industry, banks that fail to invest now risk impacting customer growth and retention.
What is data-driven personalization?
Data-driven personalization analyzes customer transaction data in real time, applies machine learning and AI algorithms to determine what’s important, and delivers personalized insights and advice to customers. Insights provide customers with a view of their finances, from spending habits to savings opportunities, and recommend actions to better manage day-to-day banking. Beyond insights and advice, leading banks are offering innovative automated financial wellness programs. These are opt-in programs in which the bank may save, invest or pay down debt on a customer’s behalf.
For example, one of our clients, Huntington Bank, recently launched Money Scout, an innovative program that grows customer savings using intelligent, automated, cashflow-based algorithms that act on a customer’s behalf. The proposition targets a growing segment of customers that are embracing automated solutions and expressing delight with the experience.
The biggest banks are moving rapidly to deliver personalized experiences. My company, Personetics, evaluated the top 40 banks in the U.S. and Canada by asset size and found that 28% are in production with data-driven personalization solutions and another 28% are currently in implementation. An additional 22% are evaluating solutions currently, leaving only 22% not considering the capability at this time.
Should you buy or build?
The largest national banks dominate the internal build category — Bank of America with Erica, Chase with Smart Insights and Citi with Insights — and invest significantly large technology budgets. As part of its $1 billion investment in mobile capabilities, Bank of America has spent tens of millions on its Erica digital assistant and is reportedly investing more to enable it to deliver “smarter” data-driven insights.
Beyond U.S. national banks, 83% of super regional and regional banks are leveraging third-party vendor solutions, according to Personetics’ 2020 research. In order to differentiate the experience, these banks typically combine third-party capabilities with internal analytics capabilities and models to deliver differentiated solutions at scale with greater efficiency.
While North America is leading the push to adopt and innovate, data-driven personalization is a global movement, with prominent banks in the U.K., Europe, Singapore, Korea, Japan and Australia all promoting new solutions. One top global bank is deploying the capability in multiple countries across Europe and the Americas, starting with Spain.
Why is now the moment for data-driven personalization?
Despite the current pandemic disruption, data-driven personalization is on a rapid adoption trajectory. I predict that basic insights and advice will become table stakes and will be provided by the vast majority of banks in North America by the end of 2022 for a number of reasons:
• Sustained digital activity will continue after the pandemic, amplifying the importance of deepening customer relationships through digital channels.
• Leading banks are starting to actively promote the capability, raising the competitive parity bar.
• Customers are embracing personalized insights, achieving satisfaction scores of 4.4 out of 5, according to Personetics’ 2020 global banking analysis.
• Community banks and credit unions are starting to demand personalization from their digital banking platform providers
Personalization drives business impacts.
Data-driven personalization benefits the banking industry both strategically and financially. Strategically, it leverages and builds on banks’ most valuable asset: customer data. It demonstrates to customers that their bank really “knows” them and is looking out for their financial well-being. Consequently, it increases the value of interactions between banks and their customers, enhancing trust and deepening relationships.
In the current economic environment where revenue and margins are under severe pressure, banks need to ensure projects deliver a strong ROI. RBC, winner of the Celent Model Bank of the Year in 2020, has publicly attributed more than 250,000 new account openings, attrition rates of 2% (vs 7-8% industry) and app dwell time up by one-third to its NOMI personalization solutions.
Separately, another of my company’s clients, a more than $100 billion retail bank, performed a one-year controlled test of customers who received personalized insights and saw a 10% incremental lift in financial value when compared with a hold-out group not receiving insights.
Leverage data to differentiate.
Banks that have yet to consider data-driven personalization should recognize that it will soon become a competitive necessity. They should strive to implement basic personalization capabilities and demand it of their digital banking platform providers.
Banks already in production should ensure they are differentiating the experience as part of their customer journeys. We call this developing a bank’s “Personalization IP.” The result will be tailored, intelligent interactions based on customer needs, enabling banks to actively promote distinctive experiences to their customers.
While still in the early stages of maturity of data-driven personalization, the industry is rapidly implementing personalized insights and advice solutions. Furthermore, leading North American banks are bringing to market automated wellness programs that help customers save, invest or pay down debt. These compelling wellness solutions give customers a helping hand to navigate various financial situations — whether creating greater customer financial resilience or building greater wealth. The payoff for customers is increasingly evident based on satisfaction and engagement scores. In return, banks will see higher levels of digital-enabled sales, lower attrition and deeper, more profitable relationships.
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