Lifestyle Banking is the Future of Financial Institutions

How banks are leveraging data and customer journeys to create deeper relationships with consumers

Table of Contents

Financial Institutions Know Digitalization Is The Future.

Many have invested in their own innovation labs, put stock in new financial technologies (fintech), or, in some cases, simply bought fintech companies and absorbed them into their own DNA. As the fintech market—more than 10,000 fintech companies today—consolidates at a quickening pace, 82% of financial institutions report that they plan to increase fintech partnerships over the next three to five years. Just last year, JP Morgan invested 10% of its budget in fintech, a move more commonly made by major technology companies.

There were 81 fintech mergers or acquisitions worth $4.1 billion between 2012 and 2017. 2018 saw $31.8 billion worth of deals. As of the first half of 2019, there have already been 87 new deals—worth approximately $117 billion.

Despite the current glut of fintech companies, large investments in digital transformation, and increasing budgets for innovation and acquisition, many financial organizations still aren’t seeing significant gains from their investments. Of the $1.3 trillion financial institutions spent on digital transformation initiatives last year, it is estimated that $900 billion went to waste.

Most of this waste can be attributed to unrealistic expectations and a lack of clear strategy. Many banks falsely believe that the adoption of certain technologies and software will answer all their digitalization problems. Others think that creating a stronger online presence or improved website will be enough. But these minor investments are merely
table stakes at this point. Customers expect more.

Rather than treating fintech like a cure-all, financial institutions need to dig deeper to understand why digital transformation is required at all. What purpose will it serve? What pain points will it solve? And, most importantly, how will it help existing customers?

Digitalization and fintech can’t solve every problem facing financial institutions, but when it comes to improving customer experiences, they go a long way toward solving issues of payment speed, security, omnichannel options, and customer loyalty.

Mastercard recently partnered with UK-based Yoyo Wallet to improve their customer’s point of sale experiences.

Data Collection Brings Higher Expectations For Personalization

Consumers have embraced the fact that companies have massive amounts of data about them. Attached to this understanding, however, comes the growing expectation that it will be used to provide them with services, products, and information they need, when they actually need it. 

Though often under-utilized, the customer data financial institutions have can be leveraged in helpful ways if made a priority. For example, certain data can provide information that helps educate customers about loan payoffs; banks can find new ways to help customers save for their first home; they can give them information about college savings accounts when they have a baby; or, they can show customers car loan rates when they have a second baby. It can even be as simple as alerting them that their paycheck has been deposited or providing information about their spending habits. 

The key here is applying context to data. Knowing the context of a customer’s life, coupled with personal data to make predictions about what they need next, will create the types of personalization customers want. Customer data can be invaluable when banks pay it the proper attention.  

While one could argue that banks always need to market more to existing customers, the larger takeaway is that a failure to personalize is a failure to secure new business. 

Forty-two percent of people who have changed banks say they did so because they received an offer or saw an advertisement from a competitor. Fifty percent of those who switched said they would have purchased from their primary bank if the bank had simply made them an offer. 

That customer data should be used to deepen relationships isn’t just theory at this point; it’s a fact. Brands that are using technology and consumer data to personalize experiences are seeing a six to ten percent increase in revenues, according to BCG research. BCG also predicts an $800 billion shift of revenue to the handful of financial services companies that are getting personalization right.

A Brief Introduction To Lifestyle Banking

People need help from their financial institutions for varying reasons at specific times in their lives. Knowing this, the products and services banks offer to satisfy those needs at those specific times should be personal and timely. The overlap between analysing consumer data, high-touch services that anticipate needs, and new digital banking features is the driving force behind the lifestyle banking concept.

“The vast majority of consumers have moved from the traditional ways of banking such as visiting physical branches, and are now banking online more frequently and increasingly open to trying innovative new digital platforms,” according to Oracle’s The New Digital Demand in Retail Banking report.

In some ways, consumers’ switch to digital banking is already complete. Satisfaction levels with the majority of banking transactions are falling, a direct result of the increasing demand for speed and convenience by consumers. As many today now see digital options as better, faster alternatives to physical banks, which are becoming more and more irrelevant to consumer’s lives.

Lifestyle banking turns this trend on its head a bit, going beyond simple digital tools to check balances, process transfers, and issue payments. It weaves financial institutions into consumers’ lives through new digital features and offers, personalized services, and timely insights that help consumers strategize and plan major financial decisions. 

Two-thirds of banking customers say they would share more data if it led to new benefits, creating a large opportunity for banks to engage customers on a more personal level. But to seize this opportunity, banks will need a dedicated customer experience team to develop a customer experience strategy. 

At a minimum, this team will regularly speak to customers to gather insights about desired features and services. They will also develop customer journey maps to help stakeholders understand how customers interact with specific service, offers, and channels, such as a bank’s

mobile app or branch locations. Paired with proprietary consumer data, this team can decide if chatbots, personalized advisory services (i.e. setting goals and tracking progress), or self-serve kiosks—among a number of other improvements—might be worth the investment.

In simplest terms, lifestyle banking uses technology and consumer data to identify new opportunities—ones that take a holistic view of a consumer’s lifestyle to solve timely pain points or create delightful experiences. Banks that have adopted this customer-centric approach to improve design, streamline processes, and automate for efficiencies have increased revenues by 25%.

Journeys,
Not Touchpoints

Lifestyle banking puts a strong focus on the steps, interactions, and overall journey a customer follows as they move towards a goal or important milestone. To incorporate lifestyle banking, banks must understand customers’ motivations and preferences (as much as they solve problems), then use that knowledge to introduce new features and services that make consumers’ lives better and easier in particular moments.

For example, opening a bank account can involve dozens of processes, departments, and checks. By automating some of these processes, digitizing forms, and using collected data, banks can make these interactions much easier for the customer to navigate.
“Financial services customers expect their data to be leveraged into personalized advice and benefits, tailored to their life stage, financial goals and personal needs.”

– Accenture 2017 Global Distribution & Marketing Consumer Study

Focus is critical when implementing lifestyle banking improvements. Banks that try to take on too many improvements or rollout multiple new features at one time “are often overwhelmed by the complexity and costs of redesign,” according to McKinsey.

Successful lifestyle banking programs display a steadfast commitment from the C-suite to evolve the entire customer journey, rather than a few, disparate touchpoints. It is from this top-down leadership that unity will emerge among branches, departments, managers, and tellers. Likewise, the feedback loop that gets created from customer feedback, dedicated resources, and consumer data feeds organizational buy-in from the bottom up.

Source: McKinsey

Perhaps the most telling sign that financial institutions should embrace lifestyle banking is that customers are showing a growing interest in fintech and challenger banks (startup digital banks). While the largest growth for these platforms is among consumers in their 20s and 30s, interest is high across all age groups, according to that same Oracle report mentioned earlier.

The most requested new banking features, according to a 2017 study by Business Insider, are for mobile transfers. This category includes instant and international transfers, bill pay, and peer-to-peer (P2P) payments. While these don’t seem like radical requests, they are, arguably, the most important. Making complex banking services more accessible and faster should be the priority of every leader’s customer experience strategy. 

Rather than get too focused on features, the shift to customer-centric lifestyle banking must involve strict data analysis, feedback from consumers, and an intense focus on value. Anything less will result in unrealized potential.

Challenges In Becoming Customer-Centric

Customer and corporate expectations for personalization are high. Here are some of the top challenges financial institutions face today.

An inflexible culture that avoids risk-taking or innovation
Technical barriers – poor data centralization
Lack of buy-in for new initiatives among staff
Department silos with little to no coordination or collaboration
Failure to empathize with customers in new services or offerings

Succeeding As A Customer-Centric Organization

Reshaping the customer experience, differentiating your brand, and driving growth go beyond a simple understanding of your customers’ wants and aspirations. It takes a willingness to observe customers in the context of their own lives and in understanding which financial milestones they’re experiencing at any given moment.

Studying customer behaviors at home, in stores, at work, while commuting, and within the walls of your bank can reveal important needs and preferences you’d never know simply by guessing, doing research, or purchasing data.

This deep understanding is key to creating the right touchpoints at the right place and time.

Financial institutions need an integrated approach to personalization that includes design thinking, new data capabilities, adoption of financial technologies (fintech), and innovative ways of working. Let’s take a quick look at each.

Design Thinking

Design thinking gets you to look beyond data to see the actual people your financial institution is serving. It focuses on people’s actual needs to help you personalize offers, identify opportunities for assistance, and create better or new services and products. 

Design thinking helps unmet needs bubble up and minimizes the risk new initiatives inherently carry. It shifts the focus from data analysis to empathy and experimentation, helping to foster more personalized experiences, marketing, and service offerings. 

Data and Analytics Capabilities

Financial institutions create, process, and analyze large amounts of data—personal customer information, transaction records, account documentation, and other third-party data just to name a few. Most of this data is disparate, disjointed, and complex. 

To step up personalization efforts, financial institutions must extract value from data assets by building proprietary data sets, securing permissions from customers to collect and use data, and entering into partnerships to acquire complementary data, all in ongoing, reliable, and repeatable ways.

New Technology

With the 10,000 or so fintech companies out there today, financial institutions should lean on existing technology. While building systems from within seems like a sensible, cost-effective approach, it doesn’t account for what can be lost or achieved in the time it takes to do so. Adopting fintech allows for the quickest time to market, best cost savings, and ease of implementation. 

When adopting new financial technologies, look for a fintech company that:

  • Dedicates itself to continued R&D
  • Supports existing and emerging technologies—especially those that allow personalization in any channel or on any device.
  • Is capable of ingesting vast quantities of data

Innovative Ways of Working

Crafting useful customer journeys requires immense collaboration across business, technology, and operations functions. Organizations must collapse silos, create dedicated cross-functional teams, and align goals. 

Financial services institutions can rely on a variety of sources—including centers of excellence, innovation labs, venture funds, activist program management offices, and strong senior management support—to strengthen this collaboration and to scale innovations across the enterprise.

Conclusion

Financial institutions today are laser-focused on digital transformation—and rightfully so. Lifestyle banking transforms the customer journey, leading to greater personalization and increased revenues.

But it’s too easy to lose the customer in the midst of digitalization. Yes, tools change, but financial institutions have always been built on customer service. And they always will be. More than ever, the customer experience is front and center, as it should be. But it’s important to remember that all of this is merely the means to an end. If it’s not improving the customer’s overall experience, what’s it all for?

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