In banking, the future is data

As institutions rely more on what they know about their customers, they also need to stay connected on a personal level.

Banking relationships used to be personal and local. Now, they’re increasingly digital and global.

Habits have shifted, “with customers expecting frictionless and instant access to their banking needs,” according to a new report on banking trends from Amazon. “Banking customers have prioritized digital self-service via mobile and web over branch or phone banking.”

It may seem surprising that Amazon—a company best known for its disruption of e-commerce—is publishing reports about the state of banking. But Amazon is also a big player in data, which may come to be seen as the biggest force changing the industry since local banks became part of global powerhouses.

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Amazon’s conclusions line up with findings from recent BAI research showing that banking customers are increasingly reliant on mobile and online channels. Nearly half of those surveyed say that their bank needs to provide a better mobile experience, and that view rises sharply among the younger millennial and Gen Z demographics.

Data is quickly becoming a key competitive advantage for banks and credit unions. To be sure, banks have long used data in credit-risk and pricing decisions, but they are increasingly using it in all parts of the customer journey and customer life cycle management. Banks “can sift through transaction data to uncover spending trends, thanks to machine-learning technologies,” says Steve Wilson, a finance expert and founder of Bankdash.com, an industry website.

Financial services is a life-cycle-based sector, meaning that banks need to understand which products and services will benefit customers at each stage in their lives. Offering college students a free checking account doesn’t generate massive profits, but that student will likely to buy a house at some point, and when that happens, the bank wants to be top of mind.

“Clients typically don’t make major monetary decisions when their banks want them to but when significant moments in life happen,” says Matt Tengwall, general manager of Verint Systems Inc. “By studying customer data, banks can view various indicators to predict important life events and design offers or products for them in the right time frame.”

Leaders are racing to figure out how to get this right, but they’re also competing with nimble fintechs unencumbered by legacy assets.

“To genuinely stand out, banks must think beyond the build-it-and-they-will-come mentality,” Wilson says. “Companies must first learn about their consumers’ wants and requirements, then strategically create new technologies and products with the customer at the forefront of every contact. For example, a bank might use data to determine which consumers prefer to use their mobile banking app over in-person branches, and then make decisions based on that important knowledge, transforming data into an asset.”

According to Amazon’s report, banks are using three approaches to establish a reinforcement loop while improving the customer experience:

  • Digital customer engagement and service: Banks have redesigned the customer experience around the customer journey. The focus is on self-service, with intuitive in-app workflows that allow customers to initiate and change payments, dispute transactions and adjust account information.
  • Contextualized or embedded finance: Banks are building embedded finance solutions that allow them to partner with other organizations to build finance and banking services into traditional customer journeys.
  • Hyper-personalized banking: Banks are using the data assets that they collect across the customer relationship to better understand customers, including what they might need next and how best to serve them.

For those with more work to do, there’s no need to feel overwhelmed, says Deloitte principal Dounia Senawi, who offers relatively simple advice: Consider the open-banking model.

With this model, banks can expand their ecosystems and offer a wider range of services to customers that move toward a full-service banking experience; tie products to life events at the right time; and act on consumer banking trends by using a targeted approach and acting quickly. “Don’t waste time trying to get the ‘perfect idea,’” she advises. “It doesn’t exist.”

Dawn Wotapka is a BAI contributing writer.

Learn how financial services organizations can use data to create strong relationships and enhance other business opportunities in the BAI Executive Report, “The power of data: How banks and credit unions can put it to work.”