The digital age has seen the inexorable rise of tailor-made offerings delivering personalized products, services, and pricing to customers. Over the past decade, banks have deployed increasingly customized offerings such as micro-segmentation and packaged products and services to boost customer loyalty and maintain their competitive advantage.
And one thing has become clear: this is no longer just about incumbents vs challengers—but rather about the sheer race to deliver the most effective hyper-personalized financial services solutions to an increasingly savvy and discerning customer base.
For banks, hyper-personalization is now paramount
It’s become ever more clear that hyper-personalization is an imperative for banks if they want to go above and beyond in responding to customers’ needs amid a volatile digital economy. In fact, as diverse industries adopt technology as their business rather than just in their business, the union of smart devices, realtime big data processing, and rapidly evolving CX capabilities has seen an explosion in new opportunities for banks to meet their customers’ desires on a highly dynamic and personalized basis.
This phenomenon was expedited by the pandemic as central banks the world over scrambled to cut rates. After a while, banks may face disruption to their vertically integrated business models as evolving customer needs are met more and more by innovative challengers picking off some of their most profitable lines of business, such as payments and forex. So over the long term, banks simply must ensure their purpose meets the expectations of a vast array of stakeholders extending far beyond the shareholders, regardless of whether the latter have had primacy for decades.
Executing a strong hyper-personalization strategy promises to differentiate a bank’s brand, and in turn boost its revenues. Just look at Netflix and Amazon, who have derived 60% and 35% respectively from hyper-personalized recommendations, as well as Starbucks, whose incremental revenue tripled by virtue of hyper-personalized offer redemptions. To achieve these objectives, then, banks must in some senses become like corporates. In the past, their success depended on mastering a handful of capabilities, such as credit allocation and capital management and operations. There was little meaningful difference between various banks’ product offerings, and banks had only limited understanding of their customers’ needs. But in the future, they will need to not just understand their customers, but cater to their idiosyncratic needs, even while they evolve. Banks must develop the branding and marketing skills enabling themselves to foster an emotional connection with those who use their services, competencies that have long been commonplace in other sectors, such as retail industries and fast-moving consumer goods.
Banks face three key obstacles as they strive for hyper-personalization
Banks are actually especially suited to adopting hyper-personalization because they enjoy both a high amount of data per customer and large customer bases. It’s therefore initially almost puzzling to ascertain what’s prevented a faster and more widespread uptake of the strategy—until you consider these three primary reasons:
- Banks aren’t harnessing the building blocks of hyper-personalization: Customer data held by banks is a gold mine, but remains perhaps surprisingly inaccessible because of legacy technology. But if they incorporate highly sophisticated data analytics, behavioural science, and ethnographic research, they will find more and more answers to the what, how, and why of customers’ habits and activities, respectively.
- Banks aren’t solving customers’ issues: Banks have a tendency to focus too much on selling products rather than addressing customer needs. This means banking products and services risk being perceived by the customer base as just commodities that won’t ultimately fulfil their objectives. But according to innovation expert Greg Satell, by leveraging four types of innovation banks can tackle a plethora of issues like never before:
- breakthrough innovation, which explores unconventional skill domains and pushes existing offerings to an unprecedented level
- routine innovation, which occurs on an incremental basis by way of improving existing offerings
- disruptive innovation, which creates a brand-new market and value network before eventually disrupting those that already exist
- basic research to improve scientific theories and enhance the understanding and prediction of phenomena.
- Banks aren’t trusted enough: Trust is grounded in three distinct elements: integrity, competence, and benevolence. Banks need to forge a far stronger emotional connection with their customers through innovative product design while delivering hyper-personalization to tap into their essential motivators while fulfilling their needs, both manifest and latent.
The BaaS imperative
An increasing number of non-banks such as eCommerce companies and telcos are offering financial services such as wallets, bank accounts, lending, insurance, and payments. Their embrace of embedded finance is part of their aim to retain customers and boost their lifetime value. So to meet this rising demand for embedded finance, more and more financial institutions are offering banking as a service (BaaS), bundled offerings which are often white-labelled or otherwise co-branded so nonbanks can use them to serve their customers.
This novel endeavour necessitates new capabilities and technologies, because BaaS is ordinarily distributed to clients via APIs, and requires strong risk and compliance management of the embedded finance partner. Many fintechs are now offering intermediate BaaS relationships, including Synctera, Unit, Bond, and Treasury Prime. Throughout all this activity, of course, banks must develop new and innovative business models, including B2B2B and B2B2C distribution capabilities, careful rebranding, and pay-for-use monetization.
This race is a free-for-all for incumbents and challengers alike
Hyper-personalization is a strategic must for banks. Those that seize the challenge most rapidly and deliver genuine end-to-end hyper-personalized products and services are set to galvanize an incredible advantage over the competition.
To do this, banks must endeavour to focus on three primary areas:
- infrastructure building blocks such as data analytics, behavioural science, and ethnographic research
- product functionality innovation to improve existing products and services
- product design innovation to forge an emotional connection with their customers.
Only those banks that truly master these sub-strategies within the long-term macro-strategy of hyper-personalization will make meaningful progress in multiplying their revenues and differentiating their brands. And one way they can get a fantastic head start is by using Toqio.
Toqio’s white label digital finance SaaS enables businesses to quickly launch and monetize new financial solutions to their customers. With Toqio, in less than eight weeks you can configure your product suite, select the right partners, apply your branding, and execute an effective launch. Get in touch today, and one of our friendly advisors will help you get the ball rolling setting up your very own distinctive digital banking solution—and get ahead of the race to hyper-personalization.