Hyper Personalization in Banking – The Perfect Win:Win Situation?
As customers get more demanding and the levels of competitive intensity increase, personalization has emerged as a key area for differentiation. Telecom providers are allowing customers to create their own call/data plans, travel portals are providing free hand in crafting itineraries, news feeds are being personalised to meet customer preferences and the options for building your own sandwich are virtually endless. Clearly customers are being offered personalized experiences across an increasing number of industries. What about financial services?
Banks used to be quite good at personalization; it was driven by humans – by knowing the staff at the local bank branch well enough to get special attention. Then it evolved into the concept of personal bankers – doubling up in their role as investment advisors. Later, with the advent of online and digital banking, customers could access their bank when and where they chose. Mobile apps, digital wallets, automated payment schedulers, reminders, self-servicing capabilities offered increasingly higher levels of personalization in banking. Moving a step further, financial institutions started offering specific products to customers based on the best fit recommendations of their analytical systems for personalization. ‘Know your customer’ suddenly became the name of the game in banking. FinTechs took personalization to another level by reinventing the entire customer experience, matching it to the preferences of their target segments. As their popularity increased, banks reacted, replicating the same experience, and some are even turning their branches into coffee shops. Personalization is set to evolve further in new dimensions by leveraging advancements in artificial intelligence and machine learning.
So what is missing? Despite all these attempts at personalization, the customer still has to choose a banking product from a ready set of standard ones on offer. While current levels of personalization may address the requirements of some customers’ quite well, it may not exactly meet the needs of many others. As most banks follow the same approach, the standard options across the banks don’t vary much.
Will this change in the future? Will this scenario change with hyper personalization in banking? And what does hyper personalization look like?
Imagine a customer looking for a loan. Suppose they visit the bank’s portal and are able to design a loan that perfectly matches their requirements instead of just hoping that one of the products offered by the bank matches their needs. Using the intuitive tools, website visitors can simply ‘drag and drop’ product features to create their ideal new product. In lending, customers could freely choose various parameters such as nature of loan, duration, interest rate composition, flexible repayment schedule and collateral type while also taking advantage of certain additional conditions such as institutional loyalty, existing portfolio with the bank, extra high credit score, family guarantee scoring and so on. While lenders provide choice today, in a hyper personalized world, if the bank has 1 million loan accounts then it may have 1 million individual loan products, each one tailored to meet the exact needs of the individual customers – perhaps with some choosing to match their repayment dates based on their “lucky” numbers or shifting from fixed rate to variable rate with lump sum repayments. In a hyper personalized world the options are virtually endless.
While this may sound unrealistic today, who knows when it might turn into reality? It would have been hard to imagine 10 years back that it would be possible to take out a loan in 10 seconds and to do it without even visiting the branch. FinTech companies and challenger banks are already disrupting the traditional players, carving out their own niches powered on business innovation and futuristic customer experiences.
Time will tell which approaches work best. However, it certainly means that banks must get ready – building new capabilities to compete in the changing business environment. Advanced technology has already made it easy for banks to create new products in minutes, incorporate comprehensive credit assessments in decision making processes, offer digital experiences as good as the world’s best, use customer preferences to shape banking experiences and analyze digital footprints to identify patterns for assessing requirements.
What does this mean for banks and other financial institutions? By bringing down the cost of acquiring customers and streamlining operations, it should result in improved profitability. By providing customers with the flexibility to create their “perfect” product; it should increase customer satisfaction – a perfect a win-win situation. Moreover, it would help banks cater to the needs of many unexplored segments, thereby extending the banking services to those currently outside the banking net. It could be argued that banks prefer to keep it simple by controlling the number of product variants that they have on offer and they need to manage. However, with the rapid developments in AI, managing this bigger portfolio of products may not really be a big challenge. However, safeguards both for the financial institutions and customers would need to be created. Banks would not want to be in a situation where the customers end up with a product that is not conducive for their business and the customers would not want to create a product that is not actually affordable. Of course, the relevant regulatory developments have to foster such a change.
Hyper personalization may bring extreme focus on customer centricity in banking and offer tremendous benefits to customers. With the noise around open banking and API based banking increasing by the day, banks are now seen at the cusp of an industry wide transformation with far reaching implications in the way they approach business. As new players try their best to grab their share of the banking pie, hyper personalization could help banks redefine the banking experience and reinforce their commitment to serve the end customer better.