How Retail Banks Use Personalization to Compete with Fintech Start-ups

How do you fight fintech—or any of the other formidable new competitors of retail banks? That’s a question that many retail banks are asking these days. A few are already eyeing customer personalization technology—such as customer data platforms—to design competitive advantages.

Retail banks need to target “market segments of size one,” to focus on each individual’s needs, says George Westerman, a research scientist at the MIT Sloan Initiative on the Digital Economy. Like many other industries, retail banking needs to get better at personalized marketing.

“They need to get their systems in order, optimize their processes, find ways to reach out, and deal with the customers,” says Westerman.

Westerman points to Kabbage, an online provider of small business loans, as an example of how fintech streamlines and personalizes the customer journey in a way that retail banks often do not. Unlike old-school lenders, Kabbage doesn’t force business owners to provide extensive documentation of their credit-worthiness. Instead, Kabbage simply requests access to an applicant’s business accounts and analyzes a number of different factors to determine how much funding to offer—all in far less time than it takes to obtain a loan from a traditional financial institution.

In contrast, retail banks often struggle to provide this kind of attention to the needs of individual customers.

For example, a customer may have used a particular bank for 20 years, giving the institution ample opportunity to build a relationship and understand the person on the other end of the transactions. Yet when the customer decides to renew a line of credit, the bank may demand the same burdensome paperwork it requires of any other applicant. That’s exactly the kind of experience that alienates customers and makes alternatives to traditional banking so appealing.

Another opportunity for retail bankers—the ability to offer different products and services to match each individual’s situation, based on insights they glean from unified customer profiles. Understanding, for example, that a particular customer you haven’t heard from in four or five years just started paying off a student loan, could be a signal that the customer just graduated and should receive offers for credit or other related products designed for young working professionals. But experts on the industry say that many banks have trouble following people throughout their life cycles, since it’s less common for people to follow the same patterns, in lockstep, that previous generations did.

Pressure to Personalize is Rising in Society

Retail banks are feeling the heat from upstart competitors and other financial institutions looking for new markets and business models. Today, fintech companies such as Venmo, Simple, Credit Karma and Kabbage provide low-cost, user-friendly alternatives for nearly any transaction, from payments, checking, and borrowing to saving and investment. Investment firms such as Fidelity, Schwab and eTrade are using websites and apps to poach some of the most credit-worthy and profitable customers with services that go far beyond their traditional stock-and-bond offerings, such as checking accounts and loans. For example, Fidelity now offers checking accounts and its own Fidelity-branded credit card. Even Amazon may enter the game, with its own version of online checking accounts.

In response, major retail banks have sought to make transactions easier and more convenient, often by partnering with fintech firms such as Zelle. And banks have succeeded in improving customer satisfaction over the past decade, according to J.D. Power.

Customers Dissatisfied with Interaction, Advice & Relationships

But customers have also become less likely to say banks have a good reputation and are customer-driven, the same study found—possibly because a focus on convenience and efficiency has led to “a decline in easy interaction, providing advice and strengthening customer relationships.”

As customers, we’ve come to expect more personalized experiences—whether we’re shopping for earphones on Amazon or ordering a drive-through meal at McDonald’s. Yet many retail banks have been slow to join the race toward personalization, at a time when new competitors threaten many of their most profitable lines of business.

For retail financial institutions, personalization offers a way to rebuild intimacy with customers and meet the challenge posed by fintech. Targeted promotions and sales are only one part of the picture. Rather, a personalized experience has the potential to enhance every interaction between bank and customer. Banks can take lessons from how fintech and other companies use customer-focused design, data and analytics to create personalized digital experiences. In addition, banks may also need to make changes to their internal systems and cultures to achieve personalization at scale.

How to Think about Personalization in Banking

Personalization is just one aspect of the need to transform the way retail banks operate in a digital-first world, according to Westerman.

“The next stage for banks is that there’s going to be an omnichannel combination of digital and offline,” Westerman said in an interview with Treasure Data. “Many banks are looking to optimize their offline environments to really focus on the things that only people can do, whether it be upselling or advising or some other things, and then shift most transactions to digital channels.” As this digital transformation deepens, banks are also “going to get much better at providing personalized offers that are actually right for that individual.”

But retail banks have the power to turn the data they already have into a competitive advantage—if they can use it efficiently and on a large scale.

“If anything, they have an advantage in managing the customers’ money—they have the customers’ spending habits. They know more about these customers than anyone else does,” says Westerman.

Personalization in Practice—from Selling Products to Delivering Value-Added Experiences

For retail banks, true one-to-one personalization requires a commitment to putting the customer first, as detailed in the white paper The Clear Path to Personalization from Treasure Data and Forbes Insights. It means customer journeys that provide a consistent experience across every channel—from web, mobile and email to ATMs and bank branches. And, most importantly, it entails a focus on activities that foster deep engagement with the individual, rather than just selling products and services.

So how can retail banks achieve such deep engagement with customers? One way is to add value to customers’ lives with recommendations, insights and guidance tailored to their individual needs at the appropriate time.

Effective personalization means a fine-grained use of data that goes beyond targeting by demographics or location. Real-time data on customers’ financial histories and behavior, for instance, is required to deliver guidance tailored to individuals rather than broad market segments. Banks need to understand not only who their customers are, but how their needs change with their lifestyles and life situations. A customer who has just had a child, for instance, will likely have different financial goals and behaviors than someone who is sending kids to college.

There’s plenty of evidence that banking customers would welcome more personalization. Nearly 80% of U.S. retail bank customers say they are interested in receiving financial advice or guidance from their bank, and almost 60% say they prefer to receive such advice via digital content delivered through a website or mobile app, according to a 2019 J.D. Power study. The more personalized such content is, the more likely it will be to strike customers as relevant, trustworthy and useful.

The following examples show how retail banks could use personalized digital content to position themselves as trusted advisers and counselors, rather than just transaction providers.

• A large Canadian bank has created multiple tools that provide customers with personalized insights and recommendations. For instance, TD’s chatbot-enabled mobile app can analyze customers’ account and transaction data to provide personally relevant offers and information—such as train schedules for commuters who regularly use a particular station, or exchange rates and locations for frequent travelers abroad. Similarly, TD worked with the fintech firm Moven to create MySpend, an app that helps users to track their spending habits and delivers notifications in real time.
• Financial institutions typically start by addressing one or two key business objectives, and then realize how transformational having easily available customer data and analytics can really be. “We wanted to find new leads and new customers,” says Nicole Rothman, Director of Acquisition Marketing at National Debt Relief. “With Treasure Data CDP giving us the insights that we need to optimize our Facebook program, we’ve cut our cost per lead (CPL) by 10% while increasing sign-ups by 46% year-over-year,” says Rothman. “Plus, we can now offer personalized customer experiences, improve targeting and segmentation, and acquire new customers much more effectively.”
• Mint, an online service that monitors and organizes a users’ financial accounts, also focuses on providing personal guidance that makes its customers’ financial lives easier. Mint’s mobile app can deliver alerts about low bank balances, bill reminders and recommendations for service providers. In addition, its MintSights tool can find patterns in customers’ financial histories and provide personalized offers and insights, such as suggestions on how to manage their cash flow. The goal, Mint says, is for the app’s personal recommendations to evolve and grow with each customer over time.
• SpeciFi, Citizens Bank’s digital advisor, aims to bring a more personalized approach to investment. At the outset, investors are asked to provide information about their risk tolerance and goals. The platform then creates a tailor-made portfolio that automatically rebalances with changes in customers’ preferences, their behavior or the market. Meanwhile, a free tool can analyze users’ outside investment accounts and make personalized suggestions for improvement.

Meanwhile, physical branches remain an asset for retail banks. But their role “needs to shift from a primary focus on making sales to offering quality financial advice,” according to a report from McKinsey on the future of bank branches. If this transition is to succeed, branch employees also will need the ability to provide personalized recommendations and advice based on complete, accurate data about customers.

How Unified Customer Data Helps Banks Get There from Here

AI and predictive analytics, meanwhile, play a key role in successful personalization—and such capabilities are only likely to grow in importance in the future.

For example, TD Bank and Mint both use machine learning to enable their apps to understand customers’ habits and preferences and make relevant recommendations. Similarly, a bank might be able to employ predictive AI—a feature offered in Treasure Data’s Customer Data Platform (CDP)—to find patterns that suggest, for example, that a customer will be looking to set up a retirement account a year or two from now. The bank could then target that person with relevant content and eventually targeted offers.

To enable such personalized interactions, retail banks need to be able to collect detailed data from every source at their disposal—for example, their branches, mobile apps, websites, loyalty programs, CRM and email lists, as well as external vendors. Just as important is the ability to meld first- and third-party data from all these sources into unified individual profiles, providing a single, comprehensive view of each customer over time.

How the Right CDP Can Be ‘Foundational’ to Meeting Privacy and Regulatory Requirements

Such a unified view of the customer can be hard to achieve for retail banks and other financial institutions, with their typically fragmented and heavily siloed stores of internal data. They have to build or acquire systems that can unite all their data on customers, while still providing security for sensitive financial information.

Credit card issuer Credit Saison, for instance, originally considered building its own private data management platform to organize its cookie ID-associated member data. In the end, however, the company found a faster, more capable solution in Treasure Data CDP. Treasure Data provided Credit Saison with a secure environment that could serve any financial institution. Now, thanks to the new Treasure Data platform, the company can quickly set up and run effective campaigns based on accurate unified profiles of each customer’s data. These profiles also serve as the basis for new financial products and services, Credit Saison is able to use its CDP to track each customer’s privacy preferences at a very fine level of detail.

Enterprise CDPs—such as Treasure Data—are so good at tracking where information came from and any restrictions on each piece of information, that they can serve as the basis for the implementation of privacy controls. Director of the CDP Institute, David Raab, goes so far as to say that CDPs are absolutely not anti-privacy. Rather, he says, “CDPs are foundational to privacy.”

CDPs Help Banks Thrive in a Personalization-Driven World

If technical know-how is essential to successful personalization, so is the willingness to embrace experimentation and innovation. Fintech companies, with their origins in the tech industry, tend to push ahead with change rather than assume constraints on their innovation. That can be a tough act to follow for risk-averse institutions in a highly regulated industry, such as traditional retail banks. But it’s also possible that retail bankers miss opportunities, because they assume they’re prohibited from offering new types of products and services.

“One of the biggest problems the banking industry has is that they are too willing to say, ‘the regulators won’t let us do that,’” according to Westerman.

“Many regulators are very happy to work with the banks to innovate as long as the regulators are part of that process. It’s just so easy to shut something down by saying the regulators won’t do it, so some things don’t even start.”

CDPs Help with a Tough Choice: Digital Transformation or Falling Behind

Retail banks need to both address these concerns—something that’s easier now that some CDPs, such as Treasure Data, provide extensive privacy controls—and weigh such worries against another kind of danger: the risk of moving too slowly in an era of rapid digital transformation that could render them non-competitive.

The pursuit of innovation doesn’t mean throwing caution to the wind. That’s because the same technology that marketers use to create monetizable, unified customer data profiles for targeting, segmentation, and personalization can also serve as the key to efficient data privacy compliance. That’s the message of David Raab, Founder and Director of the Customer Data Platform Institute (CDP Institute), in a provocative new privacy white paper and webinar.

CDPs, says Raab, are central to tracking data, permissions, and compliance requirements and records, for the terabytes and petabytes that have become the lifeblood of modern commerce. Among the implications of Raab’s talk: The era of the CDP is just beginning, both as a commerce engine and an essential element of data privacy compliance. The privacy and security features of Treasure Data CDP, for example, resulted in ISO/IEC 27001:2013 certification, as well as the successful completion of SOC 2 Type 2 audit by accredited ‚Ä®external auditors, making Treasure Data CDP an excellent choice for financial institutions.

The CDP Era Is Just Beginning in Financial Institutions

The incentives have never been higher for financial institutions to use customer data to offer the right financial products and services at key points in their lives. Banks that master value-added personalization have an opportunity to differentiate themselves as they seek to attract a new generation of customers—many of whom expect personalized experiences across channels. And those that don’t risk losing business by holding on to antiquated tactics to attract new customers. To learn about customer data platform use cases understand how Treasure Data CDP helps financial institutions be more nimble, profitable, and responsive to customers, check out Treasure Data’s financial services offerings.