Data-driven personalisation reaches a tipping point in banking
The current health crisis continues to disrupt the banking industry's financial outlook, precipitating lower lending revenues and escalating credit loss provisions. One of the few levers the industry can turn to is cost containment. Amid an overall reduction, however, investment in digital capabilities continues to accelerate to meet customers' rapidly evolving preferences toward digital servicing, support and advice.
To better prepare for this future, forward-leaning banks are capitalizing on their greatest asset - customer data - to better "know" their customers and deliver personalized experiences. Data-driven personalization appears to be at a tipping point, accelerated by the actions of leading banks and the growing body of evidence that these solutions are being embraced by customers and delivering strong returns for banks. Given the rapid adoption in the industry, banks that fail to invest now risk impacting customer growth and retention.
Data-driven personalization analyzes customer transaction data in real time, applies machine learning and AI algorithms to determine what's important, and delivers personalized insights and advice to customers. Insights provide customers with a view of their finances, from spending habits to savings opportunities, and recommend actions to better manage day-to-day banking. Beyond insights and advice, leading banks are offering innovative automated financial wellness programs. These are opt-in programs in which the bank may save, invest or pay down debt on a customer's behalf.
For example, one of our clients, Huntington Bank, recently launched Money Scout, an innovative program that grows customer savings using intelligent, automated, cashflow-based algorithms that act on a customer's behalf. The proposition targets a growing segment of customers that are embracing automated solutions and expressing delight with the experience.
The biggest banks are moving rapidly to deliver personalized experiences. My company, Personetics, evaluated the top 40 banks in the U.S. and Canada by asset size and found that 28% are in production with data-driven personalization solutions and another 28% are currently in implementation. An additional 22% are evaluating solutions currently, leaving only 22% not considering the capability at this time.
The largest national banks dominate the internal build category - Bank of America with Erica, Chase with Smart Insights and Citi with Insights - and invest significantly large technology budgets. As part of its $1 billion investment in mobile capabilities, Bank of America has spent tens of millions on its Erica digital assistant and is reportedly investing more to enable it to deliver "smarter" data-driven insights.
Beyond U.S. national banks, 83% of super regional and regional banks are leveraging third-party vendor solutions, according to Personetics' 2020 research. In order to differentiate the experience, these banks typically combine third-party capabilities with internal analytics capabilities and models to deliver differentiated solutions at scale with greater efficiency.
While North America is leading the push to adopt and innovate, datadriven personalization is a global movement, with prominent banks in the U.K., Europe, Singapore, Korea, Japan and Australia all promoting new solutions. One top global bank is deploying the capability in multiple countries across Europe and the Americas, starting with Spain.
Despite the current pandemic disruption, data-driven personalization is on a rapid adoption trajectory. I predict that basic insights and advice will become table stakes and will be provided by the vast majority of banks in North America by the end of 2022 for a number of reasons:
o Sustained digital activity will continue after the pandemic, amplifying the importance of deepening customer relationships through digital channels.
o Leading banks are starting to actively promote the capability, raising the competitive parity bar.
o Customers are embracing personalized insights, achieving satisfaction scores of 4.4 out of 5, according to Personetics' 2020 global banking analysis.
o Community banks and credit unions are starting to demand personalization from their digital banking platform providers.