Why every bank should make behavioral banking their next superpower

By Carl Rutstein, Global Head of Advisory Services at Visa

Every banking customer has a unique story. With increasingly diverse life paths, demographic data alone can no longer predict a person’s career, lifestyle choices, or the specific banking needs they may have as they navigate different life stages.

With more options than ever for individuals to find banking experiences that fit their needs, the level of competition banks are up against calls for better recognition of the people behind the account numbers. A new emphasis on behavioral banking is replacing the one-size-fits-all approach of traditional segmentation that once sufficed in keeping customers loyal. 

Going beyond demographics to embrace behavioral insights

Banks have an opportunity to evolve from being mere transactional platforms to becoming integral parts of their customers’ lives. This shift can be pivotal for their long-term success, cultivating a loyal customer base that contributes to sustainable growth.

To strengthen customer retention, banks must see the world through each customer’s eyes – with personalized products and services to meet one’s specific needs. Behavioral banking goes beyond traditional demographic metrics like age and income to acknowledge more targeted data points like life stages, responsibilities, milestones, attitudes, tastes, economic activity, and personal beliefs. This broader perspective allows for a more comprehensive understanding of customers, making age, income, and wealth-based segmentation less effective by comparison.

A fresh college graduate seeking homeownership may have different banking needs than a young adult with a desire to travel before planting roots, for example. That graduate may require financial tools that look more like what a recent divorcee may be seeking. Behavioral banking uses data cues like these to indicate lifestyle changes and evolving financial needs.

Tailor product offerings to customer sub-segments

The key to behavioral banking lies in not just observing, but proactively customizing products and services. By leveraging payment data and machine learning (a sub-set of artificial intelligence), with customer consent, banks have an opportunity to analyze where, when, and how people spend money, identify patterns, and understand lifestyle attributes. This enables them to create sub-segments that better categorize customers based on their intersecting needs, which are diverse and often unpredictable.

Products shouldn’t be developed for the sake of ticking boxes. Testing, prototyping, and client research ensure new products and services resonate with the intended audiences and uphold the bank’s value propositions.

Consider a bank that promotes student loan services to customers in the early adult/student life stage. To truly align with the nuanced needs of this customer segment, the bank could broaden its offerings to introduce new options for sending funds abroad for international students or those prioritizing travel before they complete their studies. This alignment with the nuanced needs of this customer segment demonstrates the power of a test-and-learn strategy with existing and new products and services.

Diversify Channels of Engagement

In tailoring the banking experience, it’s essential to remember that each customer likely has different communication preferences, spanning tone, language, visuals, and values. Delivering custom messaging across multiple channels is vital. These preferences vary significantly. Younger customers may lean more toward digital methods, while older ones may favor traditional channels.  However, the right channel should be driven by the customer preferences, not simplistic or dated rules of thumb.

By identifying and utilizing the full range of available channels, such as social media, online customer service, mobile banking, texting, or in-branch marketing, banks that leverage a diverse approach enable a seamless customer journey and improve overall engagement and retention.

As choices multiply, so do customer expectations. Today, it’s not enough for banks to serve their customers; they must also understand them on a personal level. Behavioral banking, the next incarnation of lifestyle banking, aims to better deliver against ‘moments of truth.’ It represents a fresh approach to strengthening customer relationships and offering more relevant products and services that evolve with customer needs.

Learn more about how Visa Consulting & Analytics can help clients apply behavioral banking strategies here.