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The finance industry is undergoing a transformation fueled by innovation and customer-centric approaches. With a focus on meeting evolving consumer needs and preferences, financial institutions are leveraging technology and novel strategies to deliver personalized services, fostering greater engagement and competitiveness in the market.
The convergence of innovation and customer-centricity is reshaping the financial services landscape, where technological advancements are driving a customer-focused revolution. Financial institutions are increasingly prioritizing customer needs, tailoring services, and leveraging data-driven insights for a more personalized approach to lending. The result is a transformative synergy that not only fosters efficiency and accessibility but also cultivates stronger relationships between financial providers and consumers. Further, major banks and the government are actively pursuing initiatives to address financial inclusions for credit “invisibles,” individuals without a traditional credit history. As financial institutions embrace open banking, collaboration with fintech startups is on the rise. This intersection promises a future where financial services seamlessly integrate technology to empower consumers with personalized, accessible, and forward-thinking solutions.
Financial institutions increasingly leverage big data and advanced analytics, including artificial intelligence (AI) and machine learning (ML), to analyze and use the vast amounts of available data. These tools enable them to gain deeper insights into customer behavior, preferences, and creditworthiness. By harnessing these technologies, lenders can offer personalized loan products and services tailored to individual customer needs and risk profiles.
The shift toward digital channels and platforms is also transforming how consumers interact with financial institutions. Forbes Advisor reports that 78 percent of adults in the United States prefer banking online, whether on a website or through an app, with only 29 percent preferring to bank in person. To meet these consumer demands, traditional banks are digitally transforming existing processes. Fintechs, on the other hand, are generally better equipped to navigate an increasingly digital world. Many fintechs specialize in developing and adopting cutting-edge technologies, such as AI, ML, blockchain, and data analytics, and leveraging these technologies to streamline the loan application and approval process, offering increased convenience and speed to customers.
The financially underserved and credit invisibles are garnering more attention within the industry. A study conducted by Experian estimated that 49 million Americans are either credit invisible or unscorable, and Forbes reports that six percent of households in the United States are unbanked. While there are many reasons individuals may be credit invisible, the issue disproportionately impacts Black and Hispanic consumers, individuals under the age of 25, and immigrants. These consumers represent an opportunity for financial institutions to increase their customer base while improving access to financial opportunities such as mortgages, credit cards, and loans to underserved groups.
An increasingly common way to address credit invisibility is with alternative credit assessments. Traditional credit scoring models often rely on limited data points, but lenders are gradually incorporating alternative data sources to assess creditworthiness. The U.S. Government Accountability Office reports that some institutions use utility payments, rental and transaction history, and educational history to create these non-traditional reports. Fintechs are among those leading the charge; for example, the credit card company Petal creates a CashScore for customers based on income and spending.
Through the Office of the Comptroller of the Currency (OCC), the U.S. government promotes financial inclusion through Project REACh (Roundtable for Economic Access and Change). REACh “brings together leaders from banking, business, technology, and national civil rights organizations to reduce specific barriers that prevent full, equal, and fair participation in the nation’s economy,” according to the OCC. One of the project’s national programs seeks to reduce credit invisibility by convening multiple stakeholders to examine the efficacy of various alternative credit assessment methods in removing barriers to greater financial and economic participation.
Today’s consumers have high expectations for the products and services they’re offered, regardless of the industry. A 2023 Meaningful Brands study found that 57 percent of respondents believe companies and brands should be dedicated to improving their customers’ lives, and 63 percent said they should help customers save time and money. Financial institutions are addressing these desires through personalization by targeting customers with services likely to meet customers’ needs.
It is crucial for financial institutions to identify the customer bases they want to target, identify the characteristics of those consumers, and then use market research and savvy data analysis to identify the products based on their audiences’ preferences. For example, are customers looking for a cash-back offer or a buy now, pay later plan? Do the customers prefer earning miles or points? Once the consumers’ needs and desires are understood, customer bases can be precisely targeted.
The targeting process itself relies on the data available to the financial institution. Alternative data sources can be beneficial for personalized targeting. Data from utility payments, rental histories, or even social media can help organizations understand what consumers want. Custom scores based on these alternative data sources can reduce the expense of targeting a large group of people, many of whom are likely not interested in the offer, and instead allow companies to target the specific people who are more likely to respond.
These customer-centric services enhance customer loyalty and retention. Without understanding customers’ needs, financial institutions may acquire customers but only act reactively to retain them. As this kind of personalization grows in popularity, the paradigm within the finance industry is shifting away from simply offering retention programs as needed. Instead, by keeping customers engaged, customer-centric organizations are better positioned to maximize the lifetime value of their customer relationships.
When executed correctly, effective personalization provides significant opportunities to traditional and emerging financial institutions. Still, it’s important that a customer-centric is strategic and properly designed to avoid potential pitfalls.
Understanding customers and their needs is essential to designing and offering personalized services. If the available data isn’t used effectively to create meaningful insights, organizations may build a product that simply isn’t useful to the customer and won’t survive in the market. By taking a holistic approach, utilizing proper market research, and understanding the data, financial institutions can develop successful products to meet their customers’ needs.
Even strong products with solid value propositions can fail if the customer experience is inconsistent. It’s important to consider, for example, what the application process is like when a customer applies for a loan or whether different processes at the same institution function seamlessly. Whether a customer is visiting a branch, calling customer service, or reaching out via email, the experience and requirements for meeting their needs must be the same; otherwise, customers may be inclined to move their business elsewhere.
Finding a balance between customer acquisition and retention is crucial. With a strong product that meets customers’ needs and good service, companies may find themselves with an influx of customers. Once acquired, however, it’s critical that customers are engaged and given appropriate attention as their needs change throughout their journey. The process doesn’t end with acquiring a customer; they are retained by a focus on their ongoing and long-term needs, such as credit line increases, financial services advice, or even personalized interest rate pricing.
With technology evolving more rapidly than ever, the financial institutions that survive and thrive will be agile and foster a culture of innovation within the organization. Embracing new technologies and resources is key; the days of relying solely on traditional bureau data are gone. Successful institutions are directing their focus toward their customers’ needs, using data acquired internally or from third parties to provide customers with better, more personal offers and services. Technology like AI and ML models can provide insights on how to target and differentiate between customers more accurately.
Leadership is key to developing and maintaining a culture of innovation. Questioning the standard operation of traditional banks and financial institutions is essential for progress and innovation. A successful leader challenges the status quo, encourages employees to do the same, and fosters a culture motivated to try new ideas.
Partnerships between fintechs and traditional banks are one such innovation. These financial institutions are forming strategic partnerships with fintech companies, retailers, and other ecosystem players to offer customers holistic financial solutions. According to a report from Bain &Company based on interviews with dozens of banks and fintechs, “Bank executives have realized they cannot keep up a sufficient pace on innovation or going to market if they work alone. Fintechs, meanwhile, look to partnerships for the revenue or investments that allow them to grow and access new markets.”
While fintechs have significant strengths in cutting-edge technology, ML, and data analytics, traditional institutions have experience and assets that are incredibly valuable to fintechs, particularly related to funding and customers. These partnerships build on the strengths of each model, delivering value to customers and driving positive outcomes for the involved parties and the industry.
Innovation is at the top of the industry’s mind, but innovation, for innovation’s sake, simply isn’t sustainable. Centering customers’ needs is critical for financial institutions, whether fintechs or more traditional banks. The most successful institutions will balance customer-centricity, innovation, and the institution’s needs, allowing each to feed the other. The best use of new and emerging technologies is to offer customers strong value propositions, and, in turn, these well-served customers benefit the institution. Financial services companies can create meaningful, long-lasting relationships with customers and drive sustainable growth by prioritizing customer-centricity at every level of the organization.
Source: global banking and finance
