In Banking 4.x, expect hyper-personalized engagements based on customer insights

Image credit: freepik.com

Hyper-personalization in Banking

2020 was a year of struggles for banks across the world. One quarter into 2021 later, it looks like recovery to pre-pandemic levels will be slow and uncertain.

Different geographies face varied levels of impact and are expected to bounce back unequally. Singapore, Saudi Arabia, Hong Kong, China and Canada are expected to have low negative impact, with recovery estimated in 2022. Moderate negative impact was seen in Brazil, Australia, USA, France, Indonesia, Italy, Spain, UK, Japan, Germany and Russia: they could recover by 2023. India, Mexico and South Africa are in the red zone, with resurgence going beyond 2023.

Customer trends have also changed, and these new patterns put consumer banks and merchants in a tough spot. They now need to stay relevant to their customers in order to win back their share-of-wallet and deliver superior customer experiences. And they need to do so quickly, or risk being out-paced by digital-first competitors. To evaluate how traditional banks perform when compared to their digitally disruptive competitors, Crayon Data developed The Relevance Quotient, a proprietary framework on seven defined parameters of a customer’s journey.

Practical dilemmas of accelerated digitalization of banks

In the aftermath of the pandemic, IT projects were the hardest hit. Gartner estimated approximately 5% decline in worldwide 2020 IT investments. Firms scaled back transformation projects: HSBC paused their open banking project Pulse (a financial forecasting app for SMEs in the UK). And Amsterdam-based ING pumped the brakes on Maggie (a plan to standardize customer experience and integrate product offerings).

Conversely, retail banking customers now have evolved expectations. When asked about their top expectations of their bank, 47% of customers wanted value-added services. This has led to Banking 4.x, marked by hyper-personalized engagements and strategically relevant products and services.

Road to Banking 4.x

Banking 1.0: Traditional, dominated by vertically integrated banks

Banking 2.0: Heavily regulated after sub-prime crisis. Healthy capitalization levels and stability. Focus on digitization and digital banking

Banking 3.0: New era of open banking. New players emerge as competition

Banking 4.0: Open X ecosystem, where exchange of data and resources expedites innovation to create superior customer experiences

Banking 4.x: Evolution of Open X, where banking is invisibly embedded in everyday life

The age of Open X banking  

Why is it called Open X? These ecosystems enable an eXchange of resources and data to eXpedite innovation and deliver superior customer eXperience. Accelerated by the Covid-19 lockdown, the latest version of the industry aims at being embedded within consumer lifestyles. It is built around long-term, sustainable growth, where human interactions evolve from servicing to advising. Here are three learnings that banks across the globe can use to course-correct and serve customer expectations.

Study customer behavior to hyper-personalize engagements.

Banks are privy to information on spending patterns and preferences and can leverage AI to derive contextual insights from this data. However, 70% of banks do not leverage third-party consulting expertise to understand customer dynamics, while 54% struggle to draw insights from existing data. Those who are ready to use customer-centric intelligence will be most successful in the new reality.

Understand that customers are willing to share data.

In a 2021 voice of the customer survey, 86% of respondents said they are willing to share their data with their bank. Of this, 36% are only comfortable sharing information with the bank but said no to third parties. And 26% are open to sharing data if there is transparency on how it is being used.

Create a customer experience that will retain and amplify value.

Every customer interaction represents a moment of truth: an opportunity to create a long- lasting positive impression on the customer. The upshot is higher customer satisfaction, increased loyalty, higher customer lifetime value. In 2020, only a quarter of global bank executives said their firm could manage and utilize data to gain powerful and deep customer insights. If the new goal is to build a personalized segment-of-one based on predictive/prescriptive models for each customer, banks must look at investing in plug-and-play AI and tech solutions.

Inputs from World Retail Banking Report 2021 — Sustainable Experiential Banking by Capgemini Research Institute and Efma and Global Banks Country-by-Country 2021 Outlook by S&P Global Ratings.