Fintech

Hyper-Personalization in Banking – The Perfect Win-Win Situation

Personalization has emerged as a key area for differentiation, because of that customers are getting more demanding and the level of competitive intensity increasing. Telecom providers are allowing customers to create their own call/data plans, travel portals are providing a free hand in crafting itineraries, news feeds are being personalized 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.

Earlier banks used to be quite good at personalization. By knowing the staff at the local bank branch well enough to get special attention, this was driven by a human. 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. Applications such as digital wallets, automated payment schedules, reminders, self-servicing capabilities, Mobile apps have offered increasingly higher levels of personalization in banking. Based on the best-fit recommendations of their analytical system for personalization financial institutions started offering specific products to customers. ‘Know your customer’ suddenly became the name of the game in banking.

By reinventing the entire customer experience, matching the preference to the target segments Fin-Techs took personalization to another level. 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.

Despite all the attempts and number of technologies at personalization customer still has to choose a banking product from a ready set of standard ones on offer. The current level of personalization may meet the requirement of some customers but it is not necessary that it will meet the needs of other customers too. As most banks follow the same approach, the standard options across the banks don’t very much.

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 the 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, in this world the options are virtually endless.

While this may sound unrealistic today, but it might turn into reality in future. 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 by 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.

By bringing down the cost of acquiring customers and streamlining operations, it should result in improved profitability. Providing customers, the flexibility to create their perfect product will increase customer satisfaction a perfect 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 will offer tremendous benefits to ton customers and will bring customer-centricity in banking. With the noise around open banking and API based banking increasing by the day, banks are now seen on the cusp of an industry-wide transformation with far-reaching implications in the way they approach business. Hyper-personalization will help banks to redefine the banking experience and reinforce their commitment to serve the end customers better.