Psychographics vs. Demographics: How to Segment Bank Customers

Banks and credit unions must get savvy with their banking customers — and that means segmenting more intelligently. Right now, financial institutions rely on quantitative data to understand customers' needs. Banking personas and qualitative data could be the solution.

For decades the banking industry focused on customer segmentation that experts increasingly said should be based on age.

First, the industry was told it wasn’t paying enough attention to Millennials.

Then, Gen Z came into the picture, a digital-native group growing up in an age of mobile banking and tappable cards. On the horizon is Gen Alpha, which could turn out to be a wholly different challenge for financial marketers.

Segmenting banking customers based solely on their age is obvious — and the common wisdom — because it’s easy. But, if a new generation with a different attitude arrives every 15 years, is segmentation by age the best technique? What if there was another way?

A Brooks Bell report recommends tailoring campaigns to customers based on their psychographics, not just their demographics.

Brooks Bell — a consulting firm based in North Carolina that focuses on building insights-driven organizations — uses both and calls the blend the “banking persona.”

“While age is a helpful data point, a more successful strategy requires more data points to gain a better understanding of where a specific customer is and what they may be looking for,” Suzi Tripp, Vice President of Insights at the agency, tells The Financial Brand.

Penne VanderBush at FI Grow says in its truest form, a persona is “a semi-fictional representation of your ideal customer, based on market research and real data about your existing customers.” It is a method for evaluating a customer’s financial habits and lifestyle to determine what banking products they need.

What’s in a Banking Persona?

There is a fine balance between the quantitative and qualitative characteristics of customers and prospects. Too often, according to Tripp, a financial marketer gathers the hard data about a customer and neglects the traits that can’t be easily quantified and yet which may be more relevant.

“Banks already have a ton of qualitative data about their customers, including data points like age, income brackets and types of accounts,” explains Tripp. “They are all beneficial to help understand where someone may be in their financial journey.”

Tripp encourages marketers to dig further. “Dive into user research to answer some of the ‘why’ questions that quantitative data cannot, as it’s the integration of those two data types that is most meaningful.”

She says she understands why bank marketers use age as a starting point — it’s convenient and predictable.

“It’s a single data point and banks capture it in all application types,” she continues. “Consumers progress from one bucket to the next on a defined timeline, so it’s pretty simple to operationalize those types of targeted, age-based communications at scale.”

But, it’s not effective.

“Banks should embrace the fact that there is no ‘set it and forget it’ recipe for success when it comes to customer profiling,” Tripp says.

VanderBush acknowledged the difficulties of building out a set of banking persona metrics. It takes sorting through data and heavy analysis to parse out a set of characteristics that can be applied to a multitude of banking customers.

There can be substantial crossover between personas, which can actually be helpful. Such overlaps can identify cross-selling opportunities, by finding products and services that can be useful for multiple personas.

Break Out Of The Mold:

Banks and credit unions waiting for best practices on how to analyze customer data might be disappointed to know that the best approach will vary from institution to the next.

For instance, the Brooks Bell report found one in five respondents who described themselves as “hopefuls” also saw themselves in the “struggling” category. This kind of overlap can be a major opportunity for financial marketers, if they choose to pursue it.

“65% of these individuals see their investments growing over the next 10 years, and say ‘impatience’ is one of the biggest words they would associate with their situations,” the report notes. “This demographic is likely ready to be empowered with tools that can help them see a path forward out of struggle, and with services that can support them when they falter.”

See all of our latest coverage on customer experience in banking.

How to Devise Bank Customer Personas

There are different methods for designing a banking persona. Some financial marketers may proactively generate a set of personas and metrics, sorting out customers by their data into those segments when they are first onboarded.

Tripp says Brooks Bell asked first about customer habits and then determined the persona subsets . Her team conducted the survey and sought out “polarizing responses” —extreme, differentiating answers — which the personas would be built around.

“Some of them were actually surprising,” Tripp says. “It’s important to let the data lead the process of defining personas. You may prove some of your hypotheses in the process, but going in with an open mind and an eagerness to learn is a great way to uncover the unexpected.”

The questions that trigger the best answers for marketers revolve around “why,” she says. Financial marketers probing why a particular product is hyperrelevant to one segment can ask questions like:

“It’s important to let the data lead the process of defining personas.”
— Suzi Tripp, Brooks Bell

Why did the consumer’s preference change? Why did they decide to pursue this particular product? Why did this other segment — perhaps even in the same generational segment — pursue a different product?

“Ask why, stay curious, conduct research, launch experiments, and remember to focus on the people behind the data,” Tripp recommends.

In its report, Brooks Bell broke out example personas it uses to categorize banking customers and determine their habits:

  • The 1%
  • The Independents
  • The Hopefuls
  • The Strugglers
  • The Secure

Although financial marketers should explore and experiment with their own banking personas, the psychographic profiles Brooks Bell designed provide a glimpse into what they can look like.

Now let’s drill into some of the personas that come out of the agency’s survey.

Read more:

‘The Strugglers’ vs. ‘The Secure’

A third of respondents in the Brooks Bell survey said they struggle with their finances, which hinders them from pursuing the life they want. Oddly enough, however, the report points out that while many people associate struggling with not being able to buy a house, over one out of three (34%) “strugglers” actually already own a home.

“Financial problems aren’t solved by the signing of a deed — inflation, mortgage rate increases and economic instability mean mortgage holders are looking for relief,” the report reads.

Keep in Mind:

Just because customers struggle doesn't mean they don't have a house. In fact, managing the mortgage may be where they need the most help.

Brooks Bell, in their qualitative studies, discovered that strugglers are more likely to want banking tools such as budget apps and debt consolidation credit. This pays off long-term as it means a bank can earn the loyalty from customers.

On the other hand, those who are comfortable with their finances — “the Secure” — will look to their banking provider to offer insights in investing or big-picture products. Nearly three out of four (71%) of those in the secure sector say they expect to invest in retirement accounts and another two out of five (41%) expect to own investments in cryptocurrency.

Read more: Why Customer Experience Makes or Breaks Banking Brands

‘The 1%’ Are a Minority — But Still a Critical Segment

“The 1%” — which describe themselves using terms like “thriving” and “extremely satisfied” — comprise 7% of Brooks Bell’s survey.

Some key facts about the 1% subgroup:

  • They use the terms “comfort”, “happiness” and “power” to describe themselves.
  • Three out of four (76%) own a home.
  • Almost a third (29%) have no concerns whatsoever about their finances.
  • Percentage of them are investing in: non-primary property, 43%; Treasury bonds and CDs, 39%; retirement accounts, 33%
  • Most are concerned about the location of their bank and its physical footprint — it’s why 70% of them have switched banks in the last two years.
  • 38% have overdrawn a checking account at least three times in the last year.

Brooks Bell points out this last point is an open door for financial institutions to offer personal wealth management advice and insights. Members of this segment have diversified where they conduct their financial affairs, and need tools to help them manage and keep tabs on their accounts.

Read more:

Are ‘The Independents’ Truly Financially Independent?

It’s all in the name — the “independent” subgroup (which made up approximately 16% of the Brooks Bell survey) is made up of single individuals who share their finances with no one.

Some key facts about the 1% subgroup:

  • Over half have positive net worth (54%), which is less than the respondent average (77%).
  • Two out of five (43%) are dissatisfied with their financial situation.
  • One out of two (53%) say they’re comfortable, but only 3% say they’re thriving financially.
  • A third have overdrawn their checking account at least once in the past 12 months.
  • Nearly half (45%) between 18-35 believe there’s currently no point in saving.

Although many of the individuals in this persona group say they arcomfortable, this is the segment of banking customers that need the most financial education, the report suggests. A key challenge for them is spending on impulse purchases and travel.

Read more: 5 Fintech Lessons Most Bankers Still Need to Learn

Who Are ‘The Hopefuls’?

When asked how they would describe their financial situation, roughly a third said “hope” was the word they would use — despite contentious world events that would seem to discourage hopeful attitudes.

Demographics can play a role in better understanding these segments — if financial marketers approach it with awareness. For instance, the survey found respondents of Latin or Hispanic descent were far less confident about their financial situations, while those from Black and Asian descent were the most hopeful.

“Financial institutions should be aware that one in three customers walking in the door or logging into their app have an optimistic mindset,” the report reads. “They have big plans, and it’s a big opportunity for their banks to grow alongside them.”

One caveat: To blindly take these personas at face value and apply them to your financial institution can undermine the diversity of customers at your bank or credit union. Marketers can use these as a benchmark. But it is also imperative marketers evaluate what best fits their own base.

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