Every day, more and more credit and debit card transactions take place without a customer ever touching their card.

From Venmo to Apple Pay, bigtech and fintech players are launching services that erode banks’ interface with customers, making it harder than ever for financial institutions to build and maintain brand loyalty. 

What’s more, these mobile wallets and payment apps also collect rich customer data that their parent companies use to personalize and optimize customer experiences. The features offered by eWallets — from streamlined user interfaces to tailored content — further strengthen their customer relationships while weakening the bank’s. Both new and established tech companies are already leveraging transaction data to launch financial products of their own, challenging financial institutions directly.

How can banks compete? By offering a better digital experience, to start. 

To thrive in an age of disruption, banks must de-silo their data, modernize their marketing tactics to focus on the customer experience, and embrace the digital future. This level of transformation is challenging for any organization, but for banks — enmeshed in complex regulations and with complex management structures that can slow change — the transition can be particularly difficult.

Fortunately, the most embattled group within the bank is also best suited to lead the way forward. Armed with copious historical data and the potential to improve customers’ most frequent touchpoints with their banks, the payments group is perfectly positioned to kickstart digital transformation for the entire organization. However, they’ll need to make some changes to internal processes and paradigms first.

Digital Transformation Roadblocks

When a customer enters a physical bank branch, they enjoy a highly personalized experience. They can access information across their entire product portfolio, helped by bank employees who can offer tailored advice or a personal touch. By contrast, a bank’s digital branch — usually its mobile app — is often entirely self-service, with no personalization or proactive advice being offered at all. 

This is a missed opportunity. Outside of physical branches, banks rely on traditional communication channels like email, flyers, and digital ads that are difficult to personalize and expensive to scale. They can get stronger results by leveraging bank-owned channels, such as a mobile app, to deliver tailored experiences that add value for customers.

However, banks face additional obstacles to delivering enhanced digital experiences that will need to be overcome before banks can harness the full power of personalization.

Proprietary or first-party data is often siloed, preventing different lines of business (LoBs) to share information with each other. Even within a single department, legacy systems may impede efforts to assemble data across channels. For example, data collected through an existing website backend might be difficult to cross-reference meaningfully with data from a new mobile app. 

These silos make it extremely difficult for banks to develop a holistic view of their customers with the data they have, much less incorporate second or third-party data, which adds another layer of complexity. However, replacing or updating outdated systems requires significant time — time that banks cannot afford to waste.

Banks’ lack of up-to-date data infrastructure has ripple effects throughout the organization, but especially in marketing. Without the data foundation necessary to personalize their marketing efforts, banks are forced to target campaigns broadly based on basic demographic and behavioral information. To add relevance, seasonal campaigns are the norm. Spring is for tax season and new home-buyers. Welcome to fall — football season or back to school, anyone? There’s nothing inherently wrong with seasonal marketing. However, to the growing number of customers who have come to expect more personalized experiences, this content may begin to feel generic or irrelevant.

In addition, this approach ties each customer to a single journey, when in fact their needs might span multiple campaigns. For example, someone shopping for a home loan might be interested in a college savings vehicle for their child as well. By addressing only one of the many journeys relevant to each customer, banks leave money on the table.

Banks often gauge campaign success in volume metrics like clicks and impressions, which measure surface-level engagement but don’t give a full picture of the health of the customer relationship. As a result, banks have little visibility into their campaigns’ actual impact on the customer experience — or their bottom lines. Instead, banks should shift their focus to lifetime customer value (LCV) and customer satisfaction as key metrics for how to prioritize marketing spend.

The end result of these small inefficiencies and missed opportunities is a negative customer experience and potential damage to customer relationships. While marketing isn’t the only component of customer experience for banks, it remains one of the most visible. Updating marketing strategies should be a top priority for banks that want to deliver better digital experiences for customers.

The Always-On Solution

In an era where bigtech sets the tone for customer expectations and best-in-class digital experiences, customers simply won’t tolerate any hiccups or friction when dealing with brands. They expect every interaction to be smooth and frictionless, like checking out at their favorite e-commerce store. They want brands to meet them where they’re at — usually on their smartphone — with relevant messages targeted specifically to them. 

One way brands can meet these expectations is by running always-on, contextually triggered marketing campaigns. An always-on campaign runs year-round, and a customer may be enrolled at any time. Enrollment is triggered automatically when the customer takes a certain action or meets a certain requirement (the context trigger). 

Once a customer is enrolled, the brand can deliver hyper-personalized experiences, including offers, content, and services tailored to the individual. These highly relevant, timely messages are informed by the customer’s immediate context as well as their preferences and habits. A customer may also be enrolled in multiple campaigns at one time, increasing the possibility that they’ll see relevant content.

For example, if a bank runs a campaign that’s designed to encourage diverse category spend, relevant context triggers may include: 

  • General behavior patterns, like having low credit card spend in the retail category
  • A specific action the customer takes, like depositing a certain amount of money in their checking account 
  • The customer’s location (as registered by their smartphone), like whether they’re close to a bank’s partner retailer

When a trigger activates, the customer receives a push notification offering an incentive to make a purchase at the nearby retail location. The result: Relevant, timely marketing messaging that’s much more likely to engage and convert customers than traditional, broadly targeted approaches. For example, one major North American bank saw a 43% increase in engagement after implementing this kind of hyper-personalized solution.

Banks need to begin delivering these kinds of experiences, or they will continue to lose market share to bigtech and fintech companies. And they need to do it fast. But how? And who needs to lead the charge?

Lead With Payments

In the battle for customer loyalty, the payments group is on the front lines. New players are entering the space in droves, and financial institutions now report payments as the group within the bank most vulnerable to outside competition. About 124 billion card payments took place in the U.S. in 2017. Each transaction is an opportunity for a bank to build their relationship with a particular customer — or damage it. 

The high stakes are reason enough for payments to pilot digital transformation efforts. However, there are other reasons this group is well-suited to drive change:

Due to its high transaction frequency, the payments group holds an enormous amount of historical transaction data and collects more data in real time each second. In many cases, this data is sufficient enough on its own to begin building a holistic view of each customer, without the need to integrate other channels or upgrade legacy systems. The high transaction frequency also makes it easy to measure the immediate impact of a new campaign — for example, did offering bonus points at a certain retailer when a customer was nearby actually result in a purchase?

For most customers, payments are their most frequent touchpoint with their primary bank, in part because credit cards — unlike other products like loans and insurance — require ongoing relationship management. Improving customer experience for payments will likely shift customers’ overall experience at their bank, delivering outsized results from a single vertical’s efforts.  

In addition, successful digital transformation in payments is likely to have a trickle-down effect on other LoBs. Improving customer experience makes it more likely that customers will engage in primary card behaviors like putting their card on file with subscription services or using it across diverse spending categories — and customers who have their primary card with a given bank are much more likely to purchase other products and services from that same bank. As a result, other LoBs can see a revenue boost from payments’ digital transformation efforts.

Payments may not be the only group that can run a successful digital transformation project. But for the reasons listed above, it’s likely to show the quickest return — and to deliver results that benefit other LoBs.

3 Steps to Digital Transformation

Taking on digital transformation, even as a small pilot project, can be intimidating. It requires deep changes in how stakeholders think about customer data and communications — changes that won’t happen overnight.

The good news is that new technology has made the first steps toward transformation much easier than they were just a few years ago. From assembling data to orchestrating and optimizing campaigns, every step on banks’ path to digital transformation is made simpler with modern, AI-driven tools.

  1. Break down silos to assemble customer data. With today’s flexible data assembly solutions, banks can organize their data across channels without expensive updates to their legacy backends. They can also use these solutions and their existing mobile banking apps to begin collecting important contextual data from customers’ smartphones. For example, is a customer running or walking? Are they near a bank branch or far away? 
  2. Use data to define audiences and trigger campaigns. Assembling contextual and transaction data within one cohesive system allows banks to define highly specific audiences ideal for hyper-personalization. It also provides the information necessary to trigger those campaigns, ensuring the right message reaches the right person at the right time. In many cases, multiple data variables will feed into a single campaign, ensuring precise and accurate targeting and timing. 
  3. Refine, tweak, and optimize campaigns. In successful relationships, people often get along better as they get to know each other better. They learn to play to each others’ strengths and avoid each others’ pet peeves.

Always-on, hyper-personalized campaigns are no different. Banks set a baseline for interaction with each customer, then continuously analyze and optimize each campaign. They can use A/B testing to refine campaigns and audience segments based on live metrics like impressions and engagement. For example, they can identify low-performing context triggers and remove them from future campaigns, and they can also remove a customer from a campaign if they opt out or are unresponsive. In addition, banks can validate certain data points with a customer to put them into the right journey, giving them input into the experience they receive.

As banks continue to tweak and optimize campaigns, the expectation is that they’ll improve their ability to target each customer with the right messages at the right times. The more a customer engages with the bank, the more tailored their marketing will become, creating a virtuous cycle that reinforces the relationship.

Impact on Payments KPIs

By enabling banks to reach customers with meaningful messages at scale, digital transformation will have a strong impact across multiple payments KPIs. Hyper-personalized experiences can deliver results more quickly and cheaply than traditional campaigns that are limited to expensive, hard-to-scale channels. Below are just a few examples of hyper-personalized campaigns optimized to specific KPIs.

Card-on-file transactions

A campaign may encourage a customer to put their card on file for a particular subscription service by offering double points or other incentives for purchases. The offers can be transmitted to the customer at the end of the month, when subscription fees come due.

Diverse category spend

If a customer uses their card for one category and nothing else, a campaign can send them relevant offers that encourage spend in other categories. For example, a customer who only uses their card for gas might see a notification that they can receive double rewards points on groceries when they’re close to a grocery store in their neighborhood.

Transaction frequency

A campaign may incentivize more frequent use of a card by offering extra rewards when the customer transacts a given number of times in a single week. With transaction data assembled properly on the backend, banks can set up extra rewards to trigger automatically when the targeted number of transactions is reached.

Contextually triggered marketing can also drive upselling and cross-selling efforts. For example, a customer with a basic credit card who recently started spending more on flights and hotels might appreciate an incentive to open a travel rewards card. A notification prompting them to fill out an application — at a time that they are not walking or driving — might be the nudge they need.

Banks that are used to broad, seasonal campaigns might be surprised at the results they see from this new type of marketing. One major Latin American bank achieved a 164% increase in offer redemptions after implementing hyper-personalized campaigns (Flybits case study). Getting started is simply a matter of choosing the business or customer problem you want to address and picking the KPIs you want to target — and optimizing campaigns carefully throughout the year.

Spreading Digital Transformation Across the Bank

Once digital transformation within the payments group is a success, what’s next? One possibility is to use payments’ story as a proof point for the impact of digital transformation — and a catalyst for change across the bank and its partners.

  • Digital transformation in other bank groups. While payments might be especially vulnerable to disruption by bigtech and startups alike, they’re not the only group affected. Alternative lenders undercut banks’ mortgage departments by offering lightning-fast approvals and low fees. Digital banks with no brick-and-mortar locations compete with traditional savings and checking accounts. To thrive in the digital era, these groups need to transform their customer experiences, too.

As mentioned above, marketing success in payments will have a trickle-down effect that boosts the revenue of other LoBs at the bank. Payments can help other groups more directly, too, by cross-selling their products via digital channels.

Both of these factors can increase other groups’ buy-in on the importance of their own digital transformation — and offer them an easy way to join in. Other groups, such as retail banking, can augment the banks’ customer data ecosystem by assembling and mapping their customer data with that of other groups. Ultimately, leading to the capability of better understanding customers and subsequently better servicing them.

  • Digital transformation in merchant partners. Digital transformation in payments may spur change in a bank’s merchant partners, too. One pain point for banks with co-branded cards is that loyalty points balances and other useful data often remain siloed on the merchant’s backend rather than being shared with the bank.

Fortunately, context-driven marketing creates a virtuous cycle that encourages data sharing between partners. The bank’s in-app marketing messages become another channel for the merchant to communicate with customers who are not in a store or using the merchant’s app. Targeted offers and content can guide customers back to the merchant’s stores, app, or website to make another purchase.

This incentivizes merchants to share rewards balances and other information with banks in order to improve both audience targeting and messaging. Thus digital transformation ultimately strengthens banks’ relationships with both their partners and their customers.

Payments as Catalyst

Digital transformation should be a top priority for every organization today. However, a change that ambitious has to start somewhere — and for banks, that place is payments.

By assembling their disparate data and deploying contextually triggered, always-on campaigns that reach customers where they are, payments can improve customer experience, drive measurable impact across multiple KPIs, and become a proof point for digital transformation’s importance. From there, it’s a small leap to spreading digital transformation across other LoBs at the bank — and even to merchant partners.

Like all big changes, digital transformation takes time. But if banks commit to scaling one-to-one communication with customers on existing bank-owned channels, that time can be measured in months rather than years or decades. With the right partners’ help, banks can finally build a modern, personalized customer experience competitive with bigtech and fintech offerings — and deliver it as quickly as their competitors do, too.