On Get to Know Your Customers Day, Credit Sesame looks at how digital banks and finance apps get to know their customers.
If a brick-and-mortar bank manager is on nodding terms with customers and greets them by their first names, does the bank know these customers? Do regular visits to a bank branch and exchanging pleasantries with the cashiers mean banks know the customers? Does a human bank employee know customers well enough to make on-the-spot decisions on loans or credit card applications about customers who have only checking accounts at the bank?
The notion of bank managers, and by tenuous extension the bank, knowing their customers personally is largely in the past. In the last ten years, the number of FDIC-member bank branches has declined by 15%. Sixty-five percent of American residents now use digital banking.
Digital banks, aka mobile and online banks and associated finance apps, eliminate most or all human interaction. Does this mean online banks do not know their customers?
Digital banks ways to get to know their customers
Online banks and finance apps get to know their customers using a wealth of techniques and information available only since the advent of the Internet. Detailed personal and financial information accessible online allows online banks to provide tailored products and services that meet customer needs. The degree to which an online bank or finance app “knows” individual customers is limited by the available data and the customer’s willingness to share information.
What data and information can online banks access?
1. Tracking actions
One way for an online bank or finance app to collect data on its customers is by tracking their actions within the app. This includes monitoring which features they use and how often, which accounts they link, and their transaction history. This data can be used to understand how customers use the app, what their needs and preferences are, and where they may be encountering challenges. For example, if a customer frequently uses the budgeting feature, the app may assume that budgeting is important to the customer and provide more budgeting-related information and advice.
2. Asking Customers
Another way to collect data is by directly asking customers for information through surveys or forms. This can include information such as income, expenses, and financial goals. This information can be used to provide personalized financial recommendations and alerts, such as suggesting ways to save money or alerting customers when they are close to going over their budget. For example, if a customer reports a high income but also high expenses, the app may suggest ways for the customer to cut back on expenses and save more money.
3. External data sources
Digital banks and finance apps can use external data sources such as credit reports to get a more comprehensive understanding of customers. This data can include credit scores, payment history, and outstanding debts, which can be used to assess customers’ creditworthiness and provide them with appropriate financial products and services. For example, if a customer has a high credit score, the app may offer them lower interest rates on loans and credit cards.
4. Social media and online activity
Many customers use social media platforms to discuss their financial experiences and share information about their spending habits and financial goals. By monitoring social media activity, digital banks and apps can gain valuable insights into customers’ needs and preferences. By tracking customers’ online activity, banks and finance apps can target their marketing efforts to reach customers actively searching for financial products and services.
Online banks and finance apps can collect data through partnerships with third-party companies. For example, a bank may partner with a retail company to offer discounts to customers who use their credit cards at that retailer. This allows the bank to collect data on the customer’s spending habits, which can be used to offer targeted financial products and services.
6. Human customer service
Digital banks may provide have dedicated human customer service teams. Humans may gather nuances of customer feedback and information that apps miss. This may include customer satisfaction, pain points, and areas where the app or online bank can improve.
7. Incentives to share
Online banks and finance apps may offer incentives for customers to share more information, such as rewards or discounts. By building trust with customers and showing them how their data is being used to improve their experience and financial well-being, online banks and finance apps can increase the likelihood that of customers sharing share more information.
8. Machine learning algorithms
Using machine learning algorithms, finance apps can analyze data collected to identify patterns and insights which can be used to make personalized recommendations, predict future behavior and create a better customer experience. For example, if customers frequently check their account balance, the app may send them notifications when their account balance drops below a certain threshold.
9. Technology and data improvement
With improvements in technology and as more data is available, personalization is likely to increase and banks/finance app may be able to provide even more tailored services. For example, with advancements in artificial intelligence, an app can analyze a customer’s spending patterns, income, and financial goals in real-time and offer personalized financial advice and recommendations.
Do digital banks know their customers?
Online banks and finance apps already know their customers and can provide valuable services and personalized recommendations based on the data they have access to. For example, they can use transaction data to identify patterns in spending and suggest ways to save money, or use credit data to offer personalized loan options.
In addition, digital banks and finance apps can leverage data and analytics tools to gain insights into customer behavior. By analyzing customer data, banks and finance apps can identify patterns and trends, which can be used to make more informed decisions about product development, marketing, and customer service. For example, by analyzing customer data, a bank may identify that a particular demographic is more likely to use mobile banking, and may decide to invest more resources in developing their mobile banking app.
Is knowing your customers so well legal?
Banks and finance apps must comply with data privacy regulations, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Banks and finance apps must also obtain consent from customers before collecting and using their data.
Online banks and finance apps make efforts to get to know their customers by tracking their actions within the app, collecting information directly through surveys or forms, using external data sources such as credit reports, monitoring social media activity, partnerships with third-party companies, providing excellent customer service, leveraging data and analytics tools, ensuring data is collected and used legally and ethically and by offering incentives for customers to share more information. Does a brick-and-mortar bank branch manager know that much about their customers?
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.