With banks no longer a go-to for consumers, personalized products may be a must

Like grocery stores and pharmacies, banks have enjoyed a reputation of being staple institutions in consumers’ lives. But this trend may be fading. Consumers are demanding more personalized products from their banks. And with the plethora of new digital banking solutions out there, they may eventually decide to take their business elsewhere. 

In terms of personalization, banks just don’t seem to be performing up to standard. 82% customers want banks to personally understand them, and only 38% said their banks are effective in doing so, according to last month’s survey by consumer data platform Redpoint Global.

Consumers don’t just want personalized products from banks. We’re seeing this trend across industries, says John Nash, Redpoint’s chief marketing and strategy officer.

“It’s pretty common across industries that consumers are looking for consistent omni-channel experiences that are highly personalized,” said Nash. “And they’re clearly not getting that from the banks.”

One factor is simply that digital banking solutions seem to have upped the bar in terms of personalizing experiences, and now consumers expect the same from their banks.

 “If a digital-first bank that only offers one product is able to have that much of a seamless, consistent experience and personally understand me — and I’ve only maybe been doing business with them for a short while — why does my traditional bank who I’ve talked to over the phone and visited in branch and had a transactional relationship for years not know me?” said Nash. 

But it’s not that banks aren’t taking steps at all to personalize their products. Offering different rates for their products for different types of people, offering credit building accounts, or special deals for clients depending on income, are all in a way examples of personalization.

But the real root of the problem, according to Nash, is data. 

It’s not that banks are lacking data — they have a lot of it: demographical, transactional, and household-related data, for example. The problem is that a lot of the data that can really help banks get to know how to personalize their products is siloed or buried away.

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“The biggest gap is really on the data side,” said Nash. “[Banks need to bring] together data in a way that helps make the consumers feel like the banks personally understand them, versus just understanding them on a product or transactional level.”

Nash says one of the ways to do this is through AI. Banks can use artificial intelligence to create more detailed segments among consumers and understand them on a deeper level through granular segmentation. For now this type of segmentation is something many banks are lacking.

“Most banks have pretty broad based segmentation that’s [more about] what kind of value [the consumer brings] to the bank versus looking at what some of the behaviors or needs or preferences the customer has and how to group [them] along those dimensions,” said Nash.

Still, we are seeing some banks starting to incorporate AI into their business models. Wells Fargo has its own AI team. Chase uses AI to sift through consumers’ financial data. The bank uses this information to implement its mobile feature called ‘Snapshot’, a daily feed of insights that is designed to help users better understand their finances. 

“Consumers have become avid users of personalization when using their favorite streaming platform, cooking app or social media,” said Allison Beer, chief product officer and head of customer experience and digital at Chase. “Finances are highly personal, so it makes sense that consumers want their bank to provide them with actionable information to make more informed financial decisions or to help them achieve their financial goals.”

But what’s interesting to ask is what smaller banks are doing or will do to provide more personalized services to their customers. These banks might not be able to afford a whole AI team like Wells Fargo, or have access to the amount of data as Chase does.

Bank Midwest is a community bank designed for people working in agriculture. The bank recently moved its core to Finastra’s Cloud offering. This could give the bank opportunities to partner with more firms and broaden its offerings, as being digital more easily enables integrations with fintech companies

“Community banks certainly don’t have a very large budget like the top 10 banks out there when we’re talking in the billions of dollars,” said Bryan Wilken, chief information and operations officer at Bank Midwest. “So we are heavily dependent on the partners and the vendors that we choose to work with.”

According to Wilken, the bank can use the APIs on the Cloud to leverage the data available about agriculture and stay one step ahead of competition by building products that are more specified and appealing to the user. Wilken uses building an app as an example. 

“What if Bank Midwest could develop an app that really targeted the agricultural communities that we serve? What if we could tie in financial data and agricultural data into that unique app?” said Wilken. “That could really help differentiate ourselves from the competition.” 

When asked what banking would look like if every bank were to move its core to the Cloud, Wilken used one word — personalized.

“Consumerization of technology has been happening to all of us. We’re driven by the Amazon effect, we’re driven by service experiences that are outstanding when they’re assisted by technology,” said Wilken. “So I’m hoping that financial institutions can meet a very personalized service that meets your goals like never before, instead of just having a menu item of what we’re offering.”

Covid has made people more open to trying new digital tools. And these new tech-tied habits aren’t likely to go anywhere. 

“I think consumers are exploring new ways to get stuff done. And they’re realizing that, hey, there’s a whole lot of digital capabilities out there that they weren’t taken advantage of, that really make their lives easier,” said Redpoint Global’s Nash. “And the lock down in a way forced them to find these new digital ways. And now that they’ve found them, they like them, and they’re going to keep them.”

In terms of the financial world, consumers have a lot more choices on how and where they want to handle their money, be it banks, fintechs, or retailers. Banks have to readjust to that fact.

“Brands were once able to push products and appeal based on the products. Now the tables have flipped,” said Nash. “The consumers are in control of their choices. They’ve realized the power that they have, and that’s going to persist.”