Can Data-Driven Personalization Save Banks?

Craig  McLaughlin

April 02, 2014

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An explosion of venture-capital backed startups is rapidly increasing consumers' expectations for the companies that they do business with. Uber has introduced both transparency and courtesy in the brusque taxi industry. Warby Parker has made it easy to shop for cheap, chic eyeglasses from the comfort of your couch. Nest has eliminated your smoke alarm's annoying low-battery beeps in the middle of the night.

Each of these startups - plus a myriad more that have arrived on the scene over the past several years - solves a real-life problem, and does so in a way that makes it extremely easy for people to benefit from the solution. In fact, these apps and websites almost feel like personal assistants; they provide services that appear to be extremely tailored to each of us as individuals (even if they're not).

As we've come to expect this new level of personal service from startups, it's not surprising that our expectations of established companies, including banks and credit unions, are changing, too. A recent study from Scratch, a unit of Viacom, showed that 53% of Millennials don't think their bank offers anything different than other banks - in other words, they're not getting that sense of personal service they find elsewhere. And one in three respondents said that they'd consider moving to another bank in the next three months.

But probably most damning for today's big banks is the fact that 73% of Millennials would prefer to get financial services from Google, Amazon, Apple, PayPal, or Square than from their traditional bank - and 33% believe that they won't even need a bank five years from now.

How will banks survive this impending disruption?

We'll undoubtedly see some acquisition activity as big banks come to grips with startups like Square and Coin. But banks and credit unions also need to invest in overhauling their existing services and interactions to make them more personalized  - and create that perception of a trusted and necessary personal assistant.

Large financial organizations already sit on a mountain of data about their customers in aggregate and on mini-mountains of personal data, both historical and contextual, about each individual customer. But how many actually use that data to engage with customers on a personal and meaningful level? When someone launches your mobile app, do you show him relevant options based on the time of day, his location, and account balance? When a customer calls your contact center, can the agent see what products she has and her most recent interactions, all in one screen, and then tailor the conversation accordingly? And, perhaps most importantly, are you using your knowledge of customers' needs and pain points to create new products that are tailored to how they really live their lives? As business visionary Peter Drucker said, "The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself."

Data-driven personalization can help banks stay relevant to their customers throughout the upcoming decades. Those that fail to leverage big data as a key asset will see tech-based startups usurp their positions as financial leaders.