With the explosion of digital banking during the pandemic, financial institutions (FIs) have their sights set high for growing revenues through digital channels. To do that, however, they’ll need to become more intertwined in and relevant to the daily lives of their customers.

One way to achieve this is by taking all the information they have about their customers and turning it into services that enhance customers’ financial wellness. Doing so would be especially welcome in the post-pandemic landscape and the financial uncertainty it has spurred.

To put it into perspective, more than 40% of UK adults are now considered “financially vulnerable,” and nearly 40% of UK adults have seen their financial circumstances deteriorate since February 2020.

Financial wellness at a personal level

While almost every bank now offers financial wellness tools of some sort, whether a budgeting app, a financial literacy course or education on financial planning, these services are generalized to all customers rather than addressing individuals’ personal financial wellness needs. Because financial situations vary greatly across individuals, the truly personalized element is vital.

For example, to help individuals build their savings, banks can use predictive AI technologies to understand customer transactions and cash flow patterns and automatically divert the right amount of extra funds to savings or investments. Royal Bank of Canada says it has helped clients save an average of $358 per month with this type of tool.

Further, by mining debit card data, banks can gain insights into spending habits that they can share with customers or incorporate into personalized offerings. Through AI-driven interventions, personalized “nudges” and micro-level targeting, banks can ensure customers take the steps needed to embrace their financial destiny.

Data and AI underpinnings

Achieving a new hyper-personalized banking future requires the right customer data and digitizing front-to-back-office operations. The financial services industry is arguably the most data-intensive sector in the global economy. Banks, in particular, have enormous amounts of customer data (e.g., deposits/withdrawals, POS purchases, online payments, KYC profiles). Historically, however, they haven’t been very good at utilizing these rich datasets.

By harnessing data responsibly — taking into consideration ethical and regulatory aspects, and striking the right balance between machine-driven and human-centric work — FIs can identify and serve new customer segments of one.

At HSBC, for example, customers can begin a conversation in the bank’s mobile app with an AI chatbot, answering simple questions immediately. Complex inquiries get passed to front-line colleagues. The AI system provides agents with details on the issue and guidance on how to resolve it.

We’ve been working with FIs to pull history and experience via AI into the conversation. We use emotion recognition tools (e.g., intelligent real-time language processing and sentiment analysis) to better understand the context of a customer’s inquiry and when a customer might be vulnerable, even if they’re not aware of it themselves.

This type of information can be harnessed to create personalized engagement plans that customize interactions. These tools can also enable banks to match agents’ personality and strengths with customers to help build deeper, more trusted customer relationships.

Time for a new approach

In addition to the customer benefits of personalization, banks can also realize cost savings and performance gains. According to Boston Consulting Group, hyper-personalization can lower rates of customer churn and boost sales, leading to annual revenue uplifts of 10%. 

However, there’s plenty of work to do. Right now, only 45% of consumers are satisfied with the quality of personalized services they receive from their banks. Here are three key ingredients for progressing toward personalized banking capabilities:

1. Technology

Banks need a mashup of data analytics, AI and automation to deliver personalization, intelligence and predictions at speed. This requires harnessing high-quality data to feed AI/ML algorithms so they can deliver experiences and services that anticipate customers’ needs, wants and desires, as well as combining automation with human supervision to build trust and empathy.

For example, we are working with FIs to link up data sources and introduce AI-powered algorithms that provide a dynamic view of a customer’s financial profile. This helps customers with their financial wellness plans and enables FIs to suggest products that enhance customers’ financial wellness.

2. Talent

Along with adroit technologists, banks need designers, anthropologists, ethnographers and others with social science pedigrees to apply human-centric design thinking to product and service development.

Social scientists are equipped to understand and apply the complexities of human behavior to help FIs predefine user personas and scenarios and use these to shape and personalize the experiences they provide.

In this spirit, we are helping a European state-owned organization to implement a user-centered digital product and service offering, including completely reengineering its mobile banking app. The existing app was plagued by a number of challenges, including a dated technology platform, poor user experience, low adoption and high cost-to-serve across non-digital channels.

We helped the organization define its go-to-market, mobile-first digital strategy, identifying key market-facing propositions based on user research as well as delivering these propositions at scale. Multiple subject matter experts were involved in the project from the outset to ensure a holistic approach, including program/project managers, scrum masters, data architects, human-centric design leads, UX and UI designers, researchers, developers, business analysts and process improvement specialists.

With this project, the bank aims to significantly increase its customer base over the next five years, by combining customer trust with a best-in-class user experience on its re-engineered mobile app, which puts it on par with challenger banks.

3. Culture

To drive change, customer well-being and digitization need to become part of the FI’s culture. This is more than merely embracing Lean methodologies and/or more flexible ways of working. Helping customers achieve financial wellness demands a fresh outlook that maximizes new, agile ways of working and data-driven approaches embedded enterprise-wide — from leadership down to every employee.

Turning the tables

For banks whose business models are based on profiting from customers’ lack of financial wellness (overdrafts, fees, charges, etc.), it can be challenging to adopt this approach. The majority of banks have a high cost-to-serve, with legacy infrastructures and high overhead.

In the face of tough competition from savvy fintechs and non-bank disruptors, however, it’s clear that incumbents urgently need to pivot their approach. FIs that incorporate personalized financial wellness into their business strategy have an outstanding opportunity to support their customers while also reinvigorating their brands — and realize growth and cost savings at the same time.

To learn more, visit the Banking Technology Solutions section of our website.