This time, it’s personal

In BBVA’s innovation centre in Madrid, an interactive map of the Spanish capital lights up in response to the transaction activity of its retail clients. The map not only illustrates the shopping habits of distinct customer segments, but also the scale of data at the disposal of banks as they aim to tailor their services based on a growing understanding of patterns of customer behaviour.

“If 10% of our more affluent Madrid clients frequent a particular area at a particular time, how can we best use that information to service them better?” posits Scarlett Sieber, senior vice-president for global business development in the new digital businesses division at BBVA . “The same question applies to concentrations of millennials or other demographics.”

In the age of the internet of things, we share vast and increasing amounts of digital information about our preferences and whereabouts. Firms such as Netflix, Amazon, Google and Uber already combine this data with machine-learning algorithms and easy-to-use interfaces to provide enhanced customer experiences and identify new commercial opportunities.

As we explore this world of personalised digital services, we inevitably expect similarly bespoke functionality in other areas of everyday activity, such as banking. Banks like BBVA – which aims to be the world’s first fully digital bank – are keen to meet this need before acknowledged leaders in the digital customer experience branch into banking.

Feedback loop At its core, the digital personalisation challenge for banks is to deliver a consistent, seamless customer experience across every device or platform, with every client transaction or communication contributing to a feedback loop to continuously refine and improve service levels. While it is important that this intelligence drives innovation, it must also enhance the trust on which the bank-client relationship is founded.

KPMG Nunwood, an international customer experience consultancy, claims personalisation is the most important of ‘six pillars’ that underpin excellent customer experiences and support long-term customer relationships. In a recent report it claimed banks have a “unique opportunity” to transform customer relationships by providing ‘anticipatory services’, which use proprietary data, analytics and third-party sources to let the customer know about things they might need before they know it themselves. In future, retail customers could rely on their banks to provide them with options when a home energy contract expires, or even list locally available discounts for regular consumer purchases. “It is personalisation writ large and it’s central to the future of banking,” the report declared.

Retail banks around the world are already developing apps that help their customers make smarter purchasing and other key financial planning decisions, but these are unlikely to gain long-term customer traction and shareholder returns without operational and strategic underpinnings. And then there’s the question of mounting competition.

“The unbundling of banking services by FinTechs is one manifestation of personalisation. If you only really care about one banking service, why source it from a generalist rather than a specialist provider focused solely on excellence in that one service?” asks BBVA’s Sieber. “With so many specific customer verticals, personalisation has never been so important.”

Open to collaboration Banks aren’t as suited to agile customer-centric product development as most FinTech startups, but they do have the trust of millions of customers and as such are well-positioned to aggregate demand. As such, both banks and startups are increasingly open to collaboration.

In September 2015, consulting group Forrester published a report which outlined how banks could shift from their existing vertical structures to embrace ‘omni-channel banking’. Broadly speaking, an omni-channel strategy retains core banking platforms, but introduces a digital banking services layer which enables the bank to incorporate the services of selected niche FinTech providers into a harmonised, consistent customer experience across multiple end-user devices. This approach encourages the kind of innovation that can deliver a more personalised customer experience, but sets it within a framework that also maintains trust, regulatory compliance and supports service quality.

One of the challenges of this transformation is for banks to adopt open APIs. While banks’ applications were once black boxes to anyone but their developers, now they are seen as sources of valuable data and capabilities that can be opened up, re-used and built upon by other developers, including those working for third parties and FinTechs. “APIs are a critical enabler of optimised customer experience. Opening up the API layer will help banks develop better customer experiences,” says Jouk Pleiter, CEO of Backbase , a technology vendor.

Backbase, which has made its name building digital solutions for retail banking, was one of a number of firms demonstrating the potential of personalisation in the wealth management space in Finovate Europe, a startup showcase event held in London in February.

The first wave of ‘robo-advisors’– front-end platforms that combine low fees, algorithm-driven vanilla investment options and intuitive web-based functionality – were initially regarded as a cost-effective, scalable means of meeting low level investment needs. Based on relatively few inputs on investor appetites and preferences, the robo-advisor would recommend from a range of options, typically passive investment vehicles such as popular, broad-based exchange-traded funds, but also provide a level of customer service.

But as pioneers Betterment and Wealthfront drew response from Charles Schwab, Invesco and BlackRock, robo-advisors have become increasingly sophisticated, gradually moving up the value chain to the mass affluent and high net worth markets.

Learning from experience At Finovate, Backbase demonstrated its Digital Banking Platform, the wealth management version of which enables private banks and wealth managers to automate personalised services at scale, not just by providing multiple portfolio views and investment options, but also using existing client information to automatically offer specific types of financial planning for key life events.

A competitor, Geneva-based InvestGlass, augmented its existing robo-advisor offering – which offers automated onboarding, portfolio optimisation and personalised advice – by unveiling new sales optimisation functionality. ‘Leads’ uses AI to learn from and respond to factors including client contact frequency requirements, preferred investment themes, past financial behaviour, ineligible securities and contact relevance.

Firms like Backbase and InvestGlass might be seen as disruptors, but they are aiming to put the machine-learnt personalisation at the disposal of relationship-owners, ie banks, rather than looking to usurp them. In both cases, the aim is to provide banks with an automated approach to service personalisation which is scalable. The machine-learning algorithms that underpin the new breed of robo-advisors are telling the sales team not only who to call about a particular service or investment opportunity, but who to call first and what to say, based on an expanding universe of structured and unstructured data.

In this context, the technology is drawing on data to help the banks’ staff deliver a more targeted, personalised service. One of the ways in which BBVA is trying to do this in the retail space is through its BBVA Wallet, a proprietary mobile payments app which already has three million users globally. The app can be used to pay from the user’s current account, take out a loan at the point of purchase, turn cards on and off (if mislaid or stolen), order new cards, pay off card balances, and define card profiles, thus capping spending or avoiding high FX rates. As well as providing the user with real-time balance info, the wallet provides merchants with analytics that track customer usage trends, thus supporting further personalisation.

For now it seems, there is no one path that banks must choose to get closer to their customer or one destination, but there is one over-arching principle: read the signs. “Is personalisation changing the delivery channels used by banks or their products? I think it’s both. Banks have to listen to customers. Fortunately, there is much more data available to help banks serve customers better,” says Sieber at BBVA.