Personalization in banking: What lessons CTOs should learn from neobanks?

In 2020, Revolut, Chime, Current, Starlink, and other neobanks that implemented best practices of personalization in banking faced an unprecedented growth reaching $35 billion worth according to Statista. And while the traditional banking and finance service providers are facing a loss of branch-dependent customers, the global neo-and challenger market is growing by 47.7% CARG annually, reaching its top worth of $722.6 billion by 2028. Now that the neobanks have proved that personalized banking experience holds the key to customer satisfaction and retention, more banks aspire to enter the competition by enabling personalization in banking solutions .

In this article you can learn about the following aspects of personalization in banking:

1. What is personalized banking?
2. What factors make personalized banking our imminent future?
3. What do statistics say about the rising trend of personalized banking adoption?
4. How to introduce personalization to your financial services?
5. Examples of personalization in banking solutions
6. Introduce personalization in your banking solution with Binariks
   

What is personalized banking? Definition of personalization in banking

By definition, personalized banking is an approach exercised by banking and financing service providers, fintech companies, and tech partners like Binariks that specialize in the development of personalized banking applications .

Personalization in banking involves the utilization of tailor-made web and mobile applications with a high level of customization to client needs. In other words, personalized banking is defined as an ability to provide context-specific experience to each customer online.

A great deal of personalized banking success belongs to the adoption of AI and ML that generate recommendations by analyzing shopping habits, location, transaction habits, and other data points for each individual customer.

The demand for personalized banking is growing even after lockdown. According to Insider , by 2024, there will be 47.8 million digital-only bank account holders in the US. And according to N26 prognosis, personalization in digital banking is expected to reach 70% in the future, reaching 1.4 billion customers globally.

Source: Insider research

As of now, the most successful global neobanks that exercise personalization in financial services in the US, Asia-Pacific, and the UK are the following.

Top US digital-only banks in the US:

1. Chime — 13.1 million holders
2. Current — 4.0 million holders
3. Aspiration — 3.0 million holders
4. Varo — 2.7 million holders

Top digital-only banks in the UK:

1. Monzo — 5.8 million holders
2. Revolut — 3.1 million holders
3. Starling — 1.9 million holders
4. Monese — 1.8 million holders

Top digital-only banks in Asia-Pacific:

1. MyBank — 21 million holders
2. Kakao Bank — 15 million holders
3. K Bank — 6.3 million holders
4. Digibank — 2 million holders
5. Jenius — 1.6 million holders

1. Gen X and millennials became the wealthiest customer share

What factors make personalized banking our imminent future? What we’re experiencing now is a shift from product-centric to a people-centric approach in banking that requires a more distinct understanding of the target audience. AI and ML-driven personalized banking solutions allow banks to analyze and understand their target audience behavior and offer personalized recommendations. According to the Purpose-Driven Banking report by Accelerance, personalized banking services could “generate an average 9 percent retail revenue uplift for incumbent banks.”

Gen Xers and millennials hold the largest share of wealth and, unlike the baby boomers and the silent generation, are characterized as more advanced tech users according to McKinsey. The report states that silent generation and baby boomers are “branch-dependent” customers who rely on in-person interactions are no longer the focus group of target customers for banks.

With the change of target customer, finance and banking service providers faced a new challenge – they needed to undergo a digital transformation as soon as possible or face a more severe crisis.

Gen X and millennials are prone to run operations on their laptops and mobile phones. Hence, service providers jumped into product innovation. They realized how vital it was to allow people access and administer their bank accounts and run operations without visiting a bank branch.

How would customers prefer to open a new bank account (McKinsey report):

• 47% face-to-face
• 47% mobile app or website
• 37% desktop or laptop

Why delegate digital transformation of your banking solution?

2. Online banking became a commodity

The bar was set high – many banks and finance service providers managed to develop mobile and web banking applications. Despite the fact that banks enabled customers to use digital channels, they were still losing customers.

35% of customers have increased their online banking usage during COVID-19.

Offered more-or-less similar packages of functions by versatile banks, customers focused on the price of using and opening a bank account rather than bank image or brand name. The missing puzzle was a personalized approach that customers experienced while visiting a bank branch in person.

3. Personalized banking delivered new value to gen X and millennials

Personalized banking solutions are substituting traditional bank representatives and regaining the loyalty of millennials and gen X. Accenture report mentions that personalized banking apps offer long-term financial wellbeing which is more important for new generations than high cost of personalized financial services.

Source: Accenture Making digital banking more human report

Personalized banking solutions are used as a differentiation factor that allows building an emotional connection with clients. Personalized solutions help nurture trustful relations between customer and bank through a chain of personalized finance management offers.

Read: 2022 Fintech trends software providers should know about

What do statistics say about the rising trend of personalized banking adoption?

• By 2028, the global neobank market is estimated to reach $722.6 billion growing at 47.7% annual average CARG rate according to Statista.
• Above 53% of customers will share more personal information with their bank in order to receive more personalized financial services according to the 2020 Global Banking Consumer Study by Accenture.
• By 2023, organizations that use AI for digital commerce are expected to reach 25% higher customer satisfaction rates according to Gartner.
• The six largest app-only banks: Revolut, N26, Monzo, Monese, Starling, and Bunq are prognozed to be downloaded more than 53 000 million times as of May 2022 as compared to 40 million times in 2021 according to Statista.
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• In 2020, 44% of total customer sales of Bank of America in Q3 2020 were accomplished via personalized banking apps according to Accenture.
• Around 77% of new customers in Germany used online channels to open accounts in Q2 2020 according to Commerzbank.

How to introduce personalization to your financial services?

Accelerance identifies the next 5 principles of building a personalized banking app:

1. Estimate the shift in customer expectations
2. Analyze your customer base
3. Develop a strategy according to market changes
4. Acquire new technology that improves agility and speed to market
5. Embed personalization into digital channels

1. Set up the data gathering process

One of the primary steps on the road to delivering personalization in banking services is tapping into the existing bank data and improving the data collection process. By raising accessibility to financial data, banks risk making data points a target for cyber attacks. To enable safe access to data, banks should adhere to the principles of data governance that encompasses policies, practices, and technical processes that operate data in a secure way.

What are the benefits of following principles of data governance in banking?

• Enforce unified standards to data compliance and security
• Introduce interoperability by standardizing data storage formats
• Gather customer data from different sources

Data governance in banking provides access to crucial data points that allow banks to cater to the individual needs of customers. So what kind of data points can banks gather?

• Data on customer interaction with the product
• Data about customer lifestyle
• Data on customer demographics
• Data on financial services customer uses
• Data on spending patterns and transactions

To secure all the gathered data that provides insights on customer behavior, banks usually choose between two options of data storage: warehouses and lakes. The main difference between those options lies in data storing principles.

Data lakes are built to store large chunks of unstructured data in a raw state. This type of data storage can be used by machine learning engineers in order to build AI-based predictive algorithms. Meanwhile, data warehouses store structured data that can be connected with the custom or proprietory business intelligence tools.

2. Modernize crucial parts of the system with APIs

Your system can be a bit outdated but it still contains valuable data that you can use to provide personalized services. The way to innovation doesn't always lie through total re-development of banking solutions. There are other options like modernizing the most necessary parts of the system by connecting it with extra analytical tools through APIs.

3. Convert customer data into actionable business goals

The way your banking system collects and analyzes customer data is crucial to understanding and predicting customer behavior. Nowadays, banks delegate customer intelligence to AI and ML technologies. There is a wide variety of recommendation, predictive, and prescriptive models your bank can apply in order to get actionable goals. By reading statistics on customer behavior, you can change the set of services, craft automatic strings of personalized offers and do many more things:

• Build banking applications for Intelligent personal financial management
• Automatically apply dynamic service fees and account pricing Improve segmentation in marketing campaigns and increase ROI
• Conduct personalized process of digital account opening and onboarding
• Recommend products and services based on the customer behavior
• Reduce the human/hour by increasing the share of AI service advisors

Examples of personalization in banking solutions

Customer intelligence solution

Polish Bank Zachodni WBK has recently launched its Neo Intelligence project. The main goal of the solution is to gather relevant data about customers from their profiles on social media and observe their activity in online communities. They've tagged customers as "leaders" and "followers" to understand their motivation and target them with more relevant propositions. The solution helped to double the responses and increase the campaign effectiveness 15-fold.

Personalized reward offering

HSBC has provided a personalized shopping experience to US credit card customers with an AI-based banking solution. The application's aim is to analyze the customer data to predict in which way customers will redeem their credit card points in order to better market offerings including cash, gift cards, travel, and merchandise. The solution offers customers a redemption category for every credit card holder. The bank has emailed customers the recommendations and saw that 70% of clients chose rewards and the email open rate grew by 40%.

Personalized emails to increase engagement rate

Bank of Ireland has merged online and offline data to improve the customer engagement rate. The solution was built to personalize emails and create an omnichannel experience for its clients. In effect, the application submissions bumped to 278% across all channels. In addition, personalized emails have generated an additional value by increasing personal loan digital application submissions by 15%.

Want to introduce personalization in your banking solution?

The movement towards personalization in banking will be only rising because of the massive change in customer expectations. So the only chance to find your way to the hearts of customers lies through data. Implementation of personalized experience in banking solutions requires the innovation of certain crucial parts of the solution.

We know that there’s no on-fit-for-all banking solution that’s why we offer custom development of banking solutions. Binariks helps banks undergo digital transformation by employing the top tech specialists in Eastern Europe. Share your product details with us and we’ll come back to you shortly.