Banks to customers: Let’s get personal

One-size-fits-all is a hopelessly outdated business approach — smart companies know that personalization is the winning strategy.

For banks and credit unions, this means returning to the industry’s roots of knowing customers personally and tailoring offerings to them, albeit with a technical twist that lets institutions compete in a world where tech-savvy startups loom as competitors.

“In many ways, personalization at scale is a 21st-century approach to delivering what the banking industry lost many years ago: the ability to truly know customers, anticipate their needs, engage in a rich dialogue about their financial lives, and, as a consequence, foster loyalty that can last a lifetime,” the Boston Consulting Group wrote in a groundbreaking 2019 report.

For those who embrace it over the next five years, that could create a profitable advantage. For every $100 billion in assets that a bank has, personalization can boost revenue growth by as much as $300 million, according to BCG. Some real-world results show what can happen: One bank cited by BCG grew revenue by 20 percent over three years, while another institution tapping personalization saw branch sales productivity spike by 30 percent.

Matching the right segments with the right offers “can create stickiness and deposit duration that are ultimately higher quality, leading to lower deposit betas over time,” PwC wrote in the 2019 Consumer Digital Banking Survey. “Pricing will always play a factor in deposit growth, but redirecting this investment to competing areas could produce a more robust customer experience and a deeper relationship with similar deposit growth.”

So why isn’t every bank and credit union, large or small, rushing to do this? They’re still figuring out that personalization is more than simply segmenting product offers or tweaking the home page — actions that are critical, but not equivalent, according to BCG.

“Customers want products and features that serve them exceptionally well and improve their lives,” said Melissa Frakman, founder and managing partner of the EMVC Fintech Fund. This means “convenience, affordability and the delight of a unique tech-enabled experience that uses disciplined data-driven personalization.”

True personalization requires getting to the core of what each customer wants and offering experiences — both human and digital — that meet those desires. But what are these needs?

According to the Aite Group, some three-quarters of 22- to 49-year-olds want a virtual financial wellness coach. Others want banks to act more like everyday parts of their lives: 37 percent seek Amazon (“I know what I want, but some relevant feedback is welcome”); 29 percent yearn for a personal shopper (“I need something and don’t know where to start”); and 16 percent want more of a supermarket (“I know what I need, and it will be there”), the report found.

Yet convincing consumers to part with the data essential to creating personalization isn’t easy, particularly as privacy concerns grow.

“Getting customers to divulge sensitive financial or personal information is always a source of friction,” said Natalie Jaeger, director of growth marketing for Zoe Financial, which uses personalization to help consumers make financial decisions. Her advice: Make sure the customer can see the tangible benefits of submitting personal information. “Whether it’s a quick account overview dashboard or a full financial plan based on past records, it should all be tailored to the user and their needs,” she said.

Of course, personalized service won’t happen overnight, warned Peter Reynolds, global head of banking for Earnix.

“Winning banks in the future need to have the ability to offer a correctly priced loan well before the customer knows he or she actually needs the money,” he said. “The leaders of this movement will need to prioritize key business lines and deploy a strategy that enables subsequent lines of business to be added year on year.”

A greater challenge in the banking industry may be contending with a range of legacy issues and, in some cases, shareholders.

“Personalization at scale mandates breaking down channel and product silos and making the customer the true center of attention,” the BCG report states. There also have to be “fundamentally new ways of working that require updating customer-centric objectives, creating customer incentives, retraining employees, hiring new talent, and building a new analytics and technology stack.”

BCG suggests this stack have three central attributes:

» Customer DNA. Bank systems need a comprehensive view of each customer, something that requires all systems working together.

» A personalized curriculum. Customer offerings should seem like they’re tailored to the individual. They should define and incentivize behaviors.

» An analytics engine and recursive learning. Perhaps the most difficult, this capability — “no less than the ability to continuously learn about each individual customer and enhance that knowledge over time” — will be an advantage for those who use it first.

To support these core elements, BCG suggests a series of steps to take along the journey. These include defining a few flagship customer experiences to achieve differentiation and then assessing capabilities for personalization — current bank technology may include useful assets. BCG also advises securing the commitment of a senior executive. Without that buy-in, it could be an uphill battle.

In a time of rapid change, business as usual won’t cut it. “Institutions that seize the challenge most rapidly and deliver true end-to-end personalization will create a significant advantage over their competitors,” BCG states. “For those that have not already embarked on the journey, the time to act is now.

Dawn Wotapka is an Army brat who graduated from NC State University and NYU. She covered the housing crash and public companies for The Wall Street Journal. She enjoys running, overnight oats and business books.