Most financial institutions still compete primarily on product and price. Instead, they should compete on helping consumers save for a home, invest wisely for the future or create a sustainable budget. These are the financial outcomes that make a real difference and change consumers’ lives. They also build an emotional connection that’s much harder break, a powerful antidote to attrition.
However, despite all the available technology and data that the banking industry has at its disposal, very few banks and credit unions can provide consumers a view of their entire financial picture, observes Jane Barratt, Chief Advocacy Officer for financial technology provider MX.
Many consumers don’t fully grasp their financial situation and how they can improve it. Not being able to access in one place all the pieces of their financial puzzle — increasingly held with multiple providers — adds to the stress and risk.
“Financial services has a moral obligation to make the world a better place,” Barratt firmly believes.
This isn’t just pie-in-the-sky do-goodness. Barratt is a vocal advocate for financial inclusion and says that financial institutions can help consumers while running a profitable business.
A great experience and good products just aren’t enough to keep customers loyal. Focus on how to help consumers take control of their financial futures.
Barratt sat down with Jim Marous, Co-Publisher of The Financial Brand, CEO of the Digital Banking Report, and host of the Banking Transformed podcast to talk about how financial institutions can leverage data to personalize interactions, create better financial outcomes and serve as advocates for consumers.
Build an Emotional Brand
In the past, the bar for banks and credit unions was set pretty low. Consumers expected their financial institution to keep their money safe and process transactions and that’s about it.
Digital has changed the rules of engagement.
“Today, banking is less about transactions and more about emotional connection,” says Marous. For instance, consumers have an emotional connection to Apple, Netflix, Hulu because these digital-native companies use data to give consumers a better experience.
Consumers are used to engaging in a fully digital manner with their money, agrees Barratt. “Consumers are comfortable with having their money on apps and not in a bank vault at the local branch. Consumers expect to move money seamlessly.”
Barratt continues. “I’m not talking about frictionless in terms of faster payments, but frictionless in terms of the way consumers manage their financial lives.”
Money Is an Emotional Topic:
Make the shift from selling products to building an emotional brand by improving financial outcomes for consumers.
Can a bank or credit union build an emotional brand like Nike or eyewear retailer Warby Parker? Definitely yes, Barratt believes. “What better way to build that connection than by really helping consumers save money, invest wisely, and spend less time banking and more time with family,” she says.
Outcome-Based Banking: The Biggest Opportunity
Barratt believes the way to create an emotional connection is through an outcome-based approach to finance, as distinguished from the usual transactional and product-based approach. Or, as Marous says, banks can become “the GPS of financial services, helping consumers predict what their next step should be.”
The shift from selling products and focusing on deposit numbers to a mindset focused on how to actually improve outcomes for consumers is the biggest opportunity in banking, Barratt believes. It starts by implementing open banking and open finance and embracing data portability in which data is shared securely and not the purview of a single organization.
That transition will have a massive trickle-down effect and create new business cases using alternative data sources, says Barratt. “You build emotional experiences for consumers. It’s a shift from a commodity to a value-added partner.”
- The Future of Customer Experience in Banking is Personalized
- How Open Banking’s Big Threat to Incumbents Could Become a Gain
- How to Build a Data Culture that Supports Digital Banking Transformation
Embrace Open Banking
Much of being able to build an emotional brand relies on having ready access to usable and useful data — from both internal sources and from other financial relationships a customer may have. This is where open banking comes in — not so much the regulatory-driven regime used in the U.K. and elsewhere as the secure, bidirectional data exchanges between consumers and their financial institutions. For example, credit card rewards points can be difficult for consumers spend, but what if a bank allowed consumers to leverage points within any part of their financial lives?
The increased use of alternative data sources to provide more credit insights is another example of the more open flow of data. This lets lenders use cash-flow based underwriting to assess the lending risk of hard-to-score small businesses, says Barratt. With consumers, financial institutions are beginning to use rental payments to create a credit profile for people with a thin or non-existent credit file.
“We all have a financial life out there that we should validate through secure data exchange and open banking,” says Barratt.
Data can fundamentally change how banking works, Barratt believes. With open banking, consumer data moves securely via APIs. One use case is to give consumers access to digital money management tools and then layer personalized insights and advice on top of those tools to help consumers be more proactive.
Anticipating what the next step should be is critical. It’s much like a self-driving car, Barratt observes. And financial institutions are in a great position since they are trusted entities.
Down the Road:
Banks will use open banking, data portability and their trust to become the 'self-driving car' of the financial world.
“Just like you need to have trust that a Tesla is not going to kill you if get behind the wheel, you have to trust your financial institution with embedded financial experiences,” says Barratt. She predicts that within three to five years, banks and credit unions will provide more “self-driving” experiences based on an open banking infrastructure.
Marous believes that banking will actually move beyond open banking to experiences based on what a consumer cares about, whether that be social justice or climate change. It’s not enough to use all this consumer data to spit out reports, says Marous. “Banks and credit unions must use data insights for innovation in ways that are visible and meaningful to the consumer.”
Consumers are Leaving — And You Don’t Know It
There’s one other imperative for change: Without a strong emotional connection, it’s just too easy now for consumers to switch financial providers.
Traditional institutions may not see consumers leave, so they don’t feel threatened. But what they don’t consider is that consumers are leaving their existing accounts with their financial institution and opening additional accounts at fintechs like Chime, PayPal and Acorns. These companies are significantly increasing the number of consumers who do business with them — and many consumers consider them to be their primary financial institution.
Financial institutions rarely, if ever, ask consumers “Where else do you do your banking?”, says Barratt. They don’t see all small transfers between a consumer’s checking account and their Acorns accounts.
Bank profits overall have not yet been hurt significantly by this silent exodus, but in time the pressure will be felt. Waiting until then to change direction is a perilous course.