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Digital intelligence: Choose-your-own-adventure model in financial services
Financial services firms should begin to shape consumer behavior rather than respond to it.
Consider an individual shopping for life insurance. The process can take weeks or even months—definitely much longer than it should even for a healthy, relatively young nonsmoker. Even when there are no issues in obtaining coverage, this standard persists. Worse yet, it’s likely that the only time a policyholder hears from an insurance company is when the premium is due or a payout occurs.
How is this a relationship? Individuals want to be confident that financial services companies are by their side and looking out for their best interests. And arguably, some of this comfort and personal connection has been lost in the migration to digital. In an era with a tremendous amount of consumer choice, financial organizations need to consider not just personalization, but how personalization at scale will rewire the end-to-end business model.
Consumption needs and preferences have changed
Outside of financial services, there are unique examples of products and user experiences adapting to consumer preferences, driving customer acquisition and engagement. Streaming services, for instance, recently started releasing content featuring a choose-your-own-adventure approach allowing viewers to make choices that determine how the story goes. By combining data from a recommendation algorithm with individual user-generated data, a dynamic, personalized experience is delivered.
Financial services should aim to mimic this behavior. Reshaping how customers conceptualize complex financial products is critical to reinforcing continued adoption, particularly for later life stage products such as life insurance and investment planning. Personalization can refocus customers that view longer-term, ‘nebulous’ goals like retirement as lower priorities. Achieving shorter-term personal goals—even if the products underlying them are the same, can help build deeper relationships between a financial institution and an individual. Delivering personalized services that aim to attain relatable life goals that expand beyond traditional product structures is a goal the industry should increasingly focus on.
To revisit the opening example, when an individual goes shopping for life insurance it is generally a direct result of a life event. Insurance providers know this—the data is there—yet there is generally no outreach or recommendation of additional products that may be suitable to help navigate the event further or supplement the pursued product. Such an event would seem to significantly increase the likelihood that someone may relocate, look for different kind of car, revisit retirement goals, or think about education savings. Clearly, there is the potential to recapture many missed opportunities.
The economics of personalization
PwC research has found that customers are willing to pay up to 16% more for similar products or services with superior tangible experiences on top of building loyalty.1 Further, 32% of customers are likely to seek alternatives after one bad experience and nearly 60% will leave after multiple negative encounters.2 A singular cross-channel, solution-oriented strategy can be critical to facilitating higher levels of personalization that achieve the associated economic potential. Still, the starting point—centralized data management—has long been a challenging goal.
As firms evaluate various digital transformation approaches, an often overlooked aspect is the resulting forced standardization of data. This is a key ingredient in developing a more agile and responsive framework for personalization, and it can be combined with existing technologies (Hadoop, containers) to cut across legacy silos and deliver value.
Music streaming is an excellent example of how personalization and convenience can be monetized successfully. Leaders in the space report ~30% year-over-year growth in active users and an even stronger ~40% YoY increase in premium subscribers.3 This growth is in spite of the fact that the space has seen a number of competitors push for market share, both from legacy technology stalwarts to new ventures. Sustained growth has been largely due to convenience on top of an industry standard to cultivate high-value, personalized playlists. Banks should seek to recreate this experience as digital becomes a larger part of the growth story, and in turn steal market share from less innovative competitors.
Today’s consumer places a high value on convenience
Digital-only banks do not automatically solve traditional pain points. In fact, their customers are the least satisfied in all of retail banking. Even so, poor communication, frustrating customer service, and high fees remain major factors chipping away at customer loyalty across the entire industry.
Perhaps the best way to overcome these pain points is with convenience, an area financial institutions have not always emphasized. Other industries such as retail and media have generated incremental value by developing more convenience illustrated by the number of consumers who now pay for one-click, instant access to any movie or TV show.
Many financial organizations have added self-service capabilities and other proactive solutions to manage personal finances in effort to add convenience to the banking process. For the bank, these can provide lower cost methods for out-of-footprint expansion and deposit growth.
For example, attracting new deposits by offering higher rates enabled through a lower cost structure potentially allows banks to grow assets in higher margin business lines more rapidly than traditional models allow. While the products themselves may be the same—basic checking and savings—the added convenience factor and the ability to outprice competitors can be used as a catalyst for growth. However, a key factor is to balance this convenience with the aforementioned need for personalization.
Voice is the gating factor to bank when and how you want
It is no easy feat to improve customer interaction and personalize products and services at scale to meet customer needs. Many cultural and technological changes are needed to begin to move the needle.
Voice technology may prove its significance. As it continues to become more and more efficient, voice computing increasingly will be seen as the go-to method of gathering customer data, essentially digitizing a direct line to the consumer. By applying machine or deep learning techniques to the data set, personalized recommendations can be made and fine-tuned over time, refined by the real-world data set derived from the voice input.
The convenience factor here is also notable. Connected devices today can proactively help with scheduled payments, for example, and they can assist with more complex tasks such as account opening. Think of the second-order benefit of replacing paperwork with pre-populated forms, the standardized information then automatically transposed to the system of record.
The bottom line
Consumers will undoubtedly demand more from financial services companies as personalization in other industries continues to evolve. As such, the way financial institutions build and maintain relationships will also need to transform, especially as digitization becomes a larger source of growth.
Many organizations have struggled to maintain a personal connection in their transition to digital, but financial institutions that appropriately respond stand to expand revenue opportunities and build loyalty in a space where customers can freely switch between financial providers. Personalization, convenience, and voice technologies are all methods that can help restore strong connections and help firms shape rather than respond to customer preferences.
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1. PwC Customer Experience Survey
2. PwC Customer Experience Survey
3. Spotify 3Q18 Earnings Release
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