Banks need to know their customers better than ever, but how do they do this?

We live in an age of big data and instant information, with the potential for companies to know their customers and understand their exact needs in deeper detail than ever before.

Analytical tools can help banks and FIs tap into the opportunities generated by open banking

But as the amount of data continues to increase exponentially, picking through it and using it effectively can be incredibly difficult.

Banks and other financial institutions need to meet this challenge head on. Digital transformation is an often-cited priority, with customer expectations sky-high in the aftermath of the pandemic. People are comfortable with their digital world and are now demanding from their banks the same level of service they receive from the likes of Amazon, Deliveroo and the other Big Techs.

Personalised banking, which relies on a thorough understanding of customer data, is a growing trend and something that is becoming increasingly desirable. Research by Accenture, for example, highlighted that 63% of global banking customers are willing to trade personal data for tailored advice and services.

At the same time, there has never been such a need for appropriate financial products, such as affordable credit, as the cost-of-living crisis intensifies. In the UK, inflation raced to a 30-year high in March 2022 as the spiralling cost of daily essentials tightened the squeeze for millions of households.

People need forward-looking banks now more than ever that are eager to support their customers and further financial inclusion and wellbeing.

Applying analytics to unlock the power of data

In these tough times, and with many people turning to the gig economy to supplement their income, people’s financial lives are complex. People also now tend to spread their spending across numerous bank accounts from a variety of banking providers to help them budget.

There’s clearly a need to link up customer data so it’s all viewable in one place, and that’s something that many have done well through the use of open banking. However, when we talk about data and its true value, we can’t lose sight of the role of analytics to help us make sense of this wealth of information.

Too many open banking offerings are focused solely on connections and aggregation. Really, it’s about actually understanding that data, categorising it and analysing it with accuracy and speed. That’s where the real value lies. Structured data is easily searchable, but this doesn’t exploit its full potential. Data needs refining and processing using sophisticated technologies.

By employing better analytics, financial providers can better understand their customers and their unique set of circumstances. And the need to stand out in terms of customer service is more competitive than ever as the industry becomes increasingly transparent.

For example, banks are now required to publicly display their customer satisfaction rankings online and in branch. Additionally, following the Competition and Markets Authority’s (CMA) investigation into retail banking, an independent survey into personal and business accounts regularly reports on whether a bank’s customers would recommend its services to fellow consumers or small businesses. Given this level of scrutiny, banks and other providers can’t afford to get it wrong.

Building stronger customer relationships, on their terms

There are many ways in which financial institutions can leverage advanced analytics to make the most of the data available in the rich open banking environment. This includes going far beyond traditional credit reports to evaluate real-time transaction data and alternative data sources, such as e-commerce activity, to better gauge an applicant’s true creditworthiness. This helps lenders to offer appropriate solutions to those who can genuinely afford them.

One credit card issuer that we work with wanted to increase the percentage of applications it approved. Using open banking data it was able to identify that a large share of those who would have been declined were actually creditworthy, in particular within demographic groups that were ‘new to credit’ or ‘new to country’. In total, 27% of those who were at first potentially declined were approved.

By harnessing the power of analytics, financial providers can also proactively identify changes in customers’ circumstances. For example, if a customer decides to change where their salary is paid to a different bank, their original provider can still use real-time information to get an accurate, up-to-date picture of their customer so they can make informed decisions. Or if a customer has started to make recurring payments for a purchase like a car, by identifying this, financial providers can offer complementary products, such as insurance, tailored specifically to that customer’s needs. This introduces a new paradigm of relationship: not pushing products in a scattergun approach, but rather foreseeing and matching a customer’s needs.

Cutting-edge analytical tools can help banks and other financial institutions to tap into the opportunities generated by open banking to sharpen their competitive edge. They can offer customers an unprecedented level of service, via a seamless user journey, that improves their financial wellbeing.

With many struggling as the cost-of-living crisis worsens, they will value a financial provider that has a finger firmly on the pulse; a supportive partner who can identify and offer the right products and services at the right time. This is the customer-centric future of banking that people need and without open banking, financial providers will not be able to achieve it.