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How banks can personalize financial wellness

Financial institutions have a valuable opportunity to use AI to alleviate worry, promote financial health and further develop customer relationships.

Jul 21, 2022 / Technology
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According to data from Bankrate, more than half of Americans are not able to cover an unexpected $1,000 expense out of savings. While this feels shocking, there are a lot of reasons Americans may be in this position.

Many are still reeling from job loss or other financial setbacks due to the pandemic, and with inflation surging at the fastest pace in nearly 40 years and gas prices recently experiencing record highs, it’s getting harder for the average American to save for unexpected expenses, let alone invest in their future.

The Federal Reserve found that fewer than 40% of consumers believe they are on track with their retirement savings, and 25% have no retirement savings at all. Beyond that, nearly two-thirds of the American population report living paycheck to paycheck.

As the cost of living rises, it is clearly putting a strain on Americans’ finances. There is arguably a greater need for financial wellness resources now than ever before – and banks must be that resource.

Only 3% of Americans spend time on household financial management over the course of an average day, and the average time spent daily on managing finances is less than two minutes. This could be due to the fact that finances are a stressor for many, or it could more simply be because most people are busy and do not have enough time to devote to financial management.

Regardless of the reason, no one can reach their goals if they are not willing or able to put in the time and effort. That is, unless they have someone – or something – that does it for them.

This is where banks can and should step in. How can financial institutions take an individualized approach to supporting each customer in their unique financial wellness journey? The best solution is to utilize artificial intelligence and machine learning to provide personalized financial advice and to further build a digital relationship with customers.

Banks can leverage AI and ML to proactively engage with customers by providing them with insights that inform their financial decision-making. Banks have a tremendous amount of customer data relating to spending and saving habits, but many times, this data is not put to work. AI can dive into this data and share personalized financial wellness recommendations based on each customer’s unique spending and saving habits which can help them manage their day-to-day finances without having to spend the time and the effort.

AI and ML can work together to do all manner of financial management tasks, including anticipating financial needs, proactively monitoring bills and expenses, or even recommending new products from the bank that will best fit their needs.

As an example, suppose the AI sees that a customer has a lot of money sitting in their checking account. In that case, it can recommend a savings account to help them continue building financial stability, or it can see that a customer has bills due soon and does not have enough money to cover them and alert that customer about the potential issue. The possibilities of using AI and ML are boundless when it comes to making financial wellness recommendations.

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While bank staff can serve as an excellent resource in the branch, most people are opting to transact digitally. Now that self-service is the way to go, AI and ML can provide an excellent opportunity for banks to maintain a level of personalized service that only used to be available in-branch.

The use of AI and ML helps customers better understand and manage their short-term finances, but it can also help them manage their regular cash flow to build for future expenses. Healthy habits daily can turn into significant changes over time. It is essential that banks are not just helping customers get by, but rather, they should be helping customers thrive and build financial stability for the long term.

During complex or uncertain financial times, financial wellness is a concept that seems somewhat daunting – maybe even unattainable. The idea of planning for the future seems impossible when customers are facing financial challenges in their day-to-day life. However, banks have a valuable opportunity to alleviate worry, promote financial wellness and further develop customer relationships using effective tools like AI and ML.

Mickey Goldwasser is VP, marketing, at Payrailz.