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Customers are demanding solutions to satisfy their unique needs for money management. Additionally, they are showing preference for simpler products where benefits and risks are easy to understand and the feeling of control over the product increases their loyalty. Therefore, banks are facing a crossroad: acknowledge and embrace the demands of customers wanting more personalized and simplified services or try to push customers into a dated mass production model.

Banking is Far from Personalized

As customers have grown accustomed to personalized solutions in other industries, the demand has begun to receive the same attention from their financial services providers. With all the innovation in other sectors, the financial world, still has a long way to catch up.

Traditional mass production techniques and commoditized products may result in getting new customers in the door, but research has shown that a key to retain customers, especially profitable ones, is through personalized solutions that drive loyalty to the brand. Furthermore, high levels of customer satisfaction result in a powerful competitive advantage and less likelihood to stray to rival banks.

Unfortunately for customers, only a few financial services companies have implemented true personalization for the broad retail segment. Banking products and services are usually categorized by one of two things; a high-degree of personal service with product personalization delivered to a small segment of wealthy individuals or standardized offerings to the broad consumer retail and mass affluent segments.

Many financial institutions have done a very nice job of drastically improving the customer experience by adding layers in the account opening flow for perceived personalization. However, a closer look at the underlying offerings uncovers no more than a “standard” product catalog behind the scenes.

A next and logical step is to give customers the ability to actually build and develop their own products, and choose the economic conditions of the same, helping meet individual saving or investing needs. Now, we start to truly change from a product-centric to a customer-centric mindset.

An example of a degree of personalization is Spanish Novagalicia´s Personalized Deposit:It lets the depositor make a key decision such as the amount to invest, the interest to earn and the deposit term. The customer can decide the interest rate he wants to earn, how much to invest and for how long just by introducing the number. Once the numbers are introduced, the customer will be offered a variety of mixed deposits in which a part goes to a time saving and another part goes to an investment fund. A higher interest rate, leads to a larger allocation to investment funds and a lower portion in the fixed term interest deposit. This new combined deposit is a big step in the right direction towards personalization.

Today, customers are putting a high value on being treated and recognized as individuals, while demanding personalized solutions from the financial industry similar to the ones they are receiving from other retail offerings.

Customers are not asking for the traditional financial/banking products. What customers are asking for now are solutions that help them with their objective of saving for specific purchases (a new car, family vacations, etc.) or planning their personal finances to be able to meet future expenses (tuition fees, home projects, etc.).

Financial institutions need to become the solution providers for the new generations and not just a product variety shop. Credit cards, loans, deposits, retirement plans, insurance plan…they all can be personalized and everything should be personalized to meet customers´ specific demands.

However, personalizing an offering to satisfy each customer´s specific needs can be a significant challenge with existing internal legacy systems.

Risks and Barriers

When properly implemented, personalization has the potential to add many benefits for a Financial institution. However, there are critical factors which need to be considered when deciding to move to this exciting concept.

Personalization may lead to new complexities from a customer’s perspective. Financial services customers, and now regulators, look for simplicity and transparency in product offerings. Satisfaction may decrease because of the overwhelming feeling a customer may have due to excessive choice or variety. When facing so much choice, customers may tend to avoid making decisions, paralyzed by indecisiveness. Thus, setting the right degree of personalization and carefully selecting the way financial institutions offer personalization is crucial for success.

Financial institutions must be aware that not all customers want personalized products or the same degree of personalization. A financial institution should be able to segment customers appropriately to allow more personalization capabilities to those that want it and offer less or zero to those who do not. Financial institutions may also find other barriers that make personalization challenging:

  • Production Cost: If an automated process is not available and utilized, personalization will be more expensive than mass production. This is why many financial institutions have limited personalization to only the highest value customer segment levels.
  • Timely Delivery: It is necessary to have a flexible system that allows financial institutions to create new products quickly and without high upfront costs.

Despite the perceived barriers in producing and delivering personalized products, some leading financial institutions have found success by developing in-house technologies or implementing third party solutions, which is usually less time consuming and more cost effective.

Final Thoughts

We are witnessing nearly a full circle approach to how companies are now focusing on satisfying customers. Many years ago, we started with a made-to-order approach with a result of higher costs to customers. Henry Ford used technology and innovation to divide labor into standardized tasks that were put together on the assembly line, resulting in a standardized product but lower costs for both companies and consumers.

Today we see another technology and innovation revolution. This time, pieces are being put together to create bespoke options coupled with low costs. As mentioned, some companies are trying to take advantage of this new opportunity, undertaking significant efforts to offer affordable tailor-made products.

When properly implemented, personalization will result in a greater sensation of comfort and higher satisfaction for customers. If customers are able to tailor-make solutions to their specific needs, product features and behavior are more easily understood than when explained by a sales representative.

Additionally, in today´s markets, where competition is fierce, offering added value to customers represents a significant and distinctive advantage for customers when selecting their financial institution. An effective personalization implementation hinges on a company’s ability to leverage new technology and innovation. Financial institution need to be able to develop or outsource flexible and automated systems that address this growing trend.

The choice at this crossroads seems clear but let us wait to see which road the financial institutions take.

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