Data is Powerful, But Not Banking’s ‘Silver Bullet’

Despite all of the hype, customer data and advanced analytics are not capable of solving all customer experience challenges. There are hurdles for financial institutions, including quality of data and constraints of systems, budgets and skill-sets. But overcoming those hurdles is not an option anymore.

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If you’re a typical bank or credit union, you’re facing more competition than you’ve ever seen before. However, because the industry is enjoying some of the most profitable years in the history of banking, most institutions aren’t feeling the pressure — yet.

A rising tide does indeed raise all boats. But, regardless of whether you see it or not, intense competition is coming from both old and new participants. The top 100 banks have grown dramatically. Their share of all assets under management steadily increased from 41% in 1992 to 75.5% in 2018.

Powerful New Competitors

Tech giants with trillions of dollars of market cap, billions of customers, and powerful and influential brands are positioning themselves to provide financial services as an adjacency to their core businesses. On top of that, in virtually every sector of finance — deposits, lending, investments, and payments — well-funded, fast growing start-ups are entering the financial industry and leveraging data to win the most lucrative parts of the banking industry’s business.

For instance, Quicken overtook Wells Fargo to become the nation’s largest mortgage provider early in 2018. Amplifying that fact, Inside Mortgage Finance reported that more than 50% of new home loans are originated by lenders that are not financial institutions, and six of the top ten mortgage lenders are non-banks. This trend is paralleled in the auto industry where Experian found that 39% of new auto loans in Q2 ’18 were made by lenders other than financial institutions.

New Market-Growth Drivers

“Today, scale as the basis of competition is being replaced by the effective use of data.”

For the last 25 years, scale has been the primary driver of growth in the financial industry — more branches, more ATMs, and more advertising equaled higher success. Today, scale as the basis of competition is being replaced by the effective use of data.

Now more than ever before, consumers are turning to their digital devices for just about everything, from entertainment and transportation to retail and much more. But digital experiences are only as good as the data that drives them. That’s why banks and credit unions that effectively use data to fuel highly relevant and personalized digital experiences will win new customers and boost retention for years to come.

Technology is continuously reducing barriers to entry across every industry, and the financial industry is no exception. This trend is enabling new entrants to come to market with less capital and less regulatory oversight more quickly, delivering a higher level of convenience for consumers than ever experienced before.

Today, top-performing banks and credit unions are benefiting from two inescapable trends in the financial industry: an increase in consumer choice and a decrease in the friction to switch. With consumers in the driver’s seat, there’s an increase in expectations for hyper-personalized experiences at every touch point — across platforms and devices. Consumers have the same expectation of financial institutions as they with Netflix, Amazon and other data-driven brands. They want relevant and personalized recommendations and offers in all of their communications.

We all know that in the video media world, Blockbuster was king until Netflix along came. Today, not only is Blockbuster gone, but Netflix has a $180B market cap. Similarly, in retail, 11 years ago Sears was worth $195B, today it’s in chapter 11. Meanwhile, Amazon is flirting with $1Trillion in market cap. What’s behind both of these pairings is an intimate knowledge of customers enabled by the use of data — or the lack of it.

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Consumers Look to Banking Providers For Help

Data is disrupting every industry, including financial services. But with the right culture in place, banks and credit unions can use the power of data to increase revenue, reduce costs, and deliver exceptional customer experiences.

Increasingly, consumers are looking to financial institutions for relevance, visibility, and advice. They want their banking provider to guide them with the right offers. They’re looking for a simple breakdown of their finances. And they want advice on how to improve their financial standing.

But none of this is possible without the effective use of data. It’s the core driving factor behind highly-relevant customer communication. “Know Your Customer,” the regulatory requirement, must be replaced by RKYC – “REALLY Know Your Customer.” To do that when most customer relationships are a series of digital transactions requires data.

With the right data, institutions are empowered to accurately segment their audiences and deliver personalized messages to customers in a myriad of ways: from prompts that help tellers advocate for customers with the right offers to personalized notifications to proactive financial guidance, and much more. The effective use of data also allows financial institutions to know when a customer has an existing offer that they can’t match. This reduces operational expenses and ensures that every customer interaction is hyper-personalized across every touch point.

Banks and credit unions that are focused on creating the right digital customer experiences are seeing an increase in customer satisfaction. In turn, when customer satisfaction increases, adoption and engagement also gain momentum. Ultimately, the boost in adoption and engagement lead to a financial institution becoming the primary financial partner for account holders. A recent study of 1,400 financial institutions using data showed a significant increase in business results over their peers who were not using data effectively.

Data, by Itself, is Not The End-All, Be-All

It’s easy to see how retail bankers could view data as the answer to everything. But there’s no data silver bullet. Simply downloading data from across the organization or purchasing a software solution will not address all of the insight opportunities and challenges for financial institutions. To remain successful in the new data age, financial institutions need a data-driven engagement strategy — starting with the organizational vision that must be aligned with internal processes and products.

From there, create a customer engagement journey map, building a business case for internal development and vendor management, with a team structure that aligns with your product roadmap. Finally, implement a mechanism for continual client feedback. Once these steps are properly in place, financial institutions can decide which software services make the most sense for their organization.

Banks and credit unions need to move beyond simply building applications that are centered around their own analytics needs or that only allow for single-channel personalization. An institution also needs to find a solution that can connect to all systems as opposed to only a few, or even just one.

Finally, the solution must sync with all application data stores in addition to working with third-party external data. And all of the processing and application of data and insights must create customer engagement in real-time.

A Competitive Differentiator

Today, there are numerous factors disrupting the financial industry — with data being at the heart of that disruption. Big tech companies, successful startups, and big banks are all using data to win customers hearts and minds.

Financial institutions that use clean, accurate data will be able to compete effectively against these new and growing entrants in the financial industry by creating personalized digital experiences that lead to a significant increase in ROI. Whether it’s measured by having a five-star app, growing adoption, boosting retention, or increasing engagement, data and advanced analytics is at the heart of the solution.

The industry is truly entering a new era — the Data Age of Banking.

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