Hyper-personalization: The Silver Bullet to Success in Digital Banking

By Raviteja Dodda

This article originally appeared in The Times of India and belongs to the creators.

Digitalization, a high-priority exercise, will open new doors to success in the banking industry. However, here is the catch: the approach needs to shift from being an effort that simplifies a bank’s administration and internal processes to a dynamic palette that offers highly customized experiences to consumers.

The internal focus on digitalization, no doubt, results in addressing consumer needs better than traditional methods. However, banks have to ramp up their efforts significantly to suit individual consumer demands. 

New-age fintech companies are already high on the digital platform and are luring the digital-savvy clientele. If banks want to stem this tide, they must move from being a “Digital Inside-Out” entity to a “Digital Outside-In” service provider. 

In other words, banks must offer more than traditional, transactional banking solutions and enhance their digital capabilities. Also, these digital systems need to integrate with their offline touchpoints in a seamless manner to offer the best “phygital” experience to banking customers. This will help them transform into “bespoke financial hypermarkets.”   

Financial hypermarkets through hyper-personalization

A Deloitte report The future of retail banking: The hyper-personalization imperative November 2020, stresses, “Hyper-personalization is imperative for banks, enabling them to respond to customers’ manifest and latent needs.” 

Hyper-personalization is all about a consumer-centric approach that leverages real-time data to deliver services, products, and pricing that suit their current and future needs and also their latent needs. These insights are driven by behavioral and data science using Artificial Intelligence (AI). 

Transaction banks are staring at a digitalization opportunity that could be worth over a trillion dollars. The prospects are the “digital natives” who will become financially active by 2025. 

Some banks have managed to cross over and launch services like accounts-receivable management, factoring, accounting, and cash-flow analysis to SMEs. A few of them are also partnering with health insurers to enable consumers to pay their health bills. 

Banks have to move from tangible performance achievements like credit allocation, capital management, and operations and align their digital skills to achieve customer-centric success metrics. These include factors like technological preferences, product and service offerings based on customer’s financial standing, milestones in life, and household relationships, like having young adult children or dependent parents.  

This, in turn, will build their brand, boost revenues, improve the financial inclusion of the target base, and, most importantly, extend the lifespan of their relationship with customers.  

The road ahead from mass segmentation to hyper-personalization may be wrought with challenges, but banks have to be ready with their A-game. The first step is gathering crucial customer data, which must be critically combed using AI to provide insights into the customer’s current context. The insights thus derived can be used to tailor an attractive recommendation – cost, terms, penalties, mortgages, and bonuses. Armed with this custom-made proposition, the relationship manager can make a compelling case to the client, thus invoking the power of a hybrid digital-human model. 

Hyper-personalization helps in reducing the costs of reaching products/services to consumers, tailoring products/services to customer needs, reworking risk methods, and simplifying products. In short, it helps in getting a 360-degree view of the consumer and sending out the right message at the right time. 

Challenges to hyper-personalization

There are some stumbling blocks along the path. One is fulfilling a consumer’s perception of being a “unique user” who ought to receive personalized service. 

Second, many banks are unable to effectively leverage the data goldmine they possess because the information is stored on different platforms and legacy systems. The need of the hour is a simple solution that can seamlessly integrate and correlate various platforms and systems effectively. 

Banks also have to reckon with concerns revolving around credibility and trust. They have to constantly communicate to their customers on the reliability of their offerings and update and convince them on the range of solutions on offer. 

Getting started with hyper-personalization

The following areas can generate a robust hyper-personalization process. If used to full capacity, they can answer the critical customer demands of “what,” “how,” and “why.”

1.Data analytics

Granular consumer data can help banks to break up their engagement strategy to suit different user segments. Banks can monetize the data they possess by differentiating between actionable and non-actionable data. This can help them identify behavioral patterns, model customers’ propensity to buy a product, and offer timely products/services to customers – whether it is a student looking for refinance borrowing or a doctor looking for special interest rates. 

2. Behavioral science

This enables banks to refine personalization by exploring, measuring, and predicting consumer behavior. For example, a technology start-up can be offered an attractive corporate credit card with relevant benefits and services. Or a small firm that needs quick funds can be targeted appropriately.  

Here is another example to show how banks can tap into the behavioral patterns of customers. A leading bank uses AI to predict how customers like to redeem credit card points. This allows it to offer customers valuable personalized rewards that they are more likely to appreciate. 

3. Ethnographic research

This answers questions around the “why” of customer behavior. By using ethnographic research, banks can collect data on observed cultural and social influences on customer behavior, rather than intentions as stated in surveys, and do away with biases and beliefs about customer behavior. 

4. Segmenting customers

Through tools like RFM (recency, frequency, and monetary) analysis, banks can categorize customers based on the likelihood of their purchase. For example, customers can be grouped based on even user events, like, users who have done x number of transactions in the last one week. 

5. Choosing the right channels to communicate

Bringing in digital services is not just stacking up new digital touchpoints such as email, social media, app, website and e-wearables. It’s more about building a hub that enables each of these channels to integrate seamlessly with each other and offline touchpoints to share data. Banks can then leverage that information to build meaningful conversations in real-time. No matter what channel consumers choose to connect with their banks, the latter can build upon their previous engagements and make meaningful conversations with each service user. 

When this happens, banks are no longer talking to the masses but speaking one to one, through the innovative and optimum use of the tools of digitization. Therein lies the success of banks in the digital world.

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