Monetizing Digital Banking Channels

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Financial institutions are awash in data that could enable them to construct the most intimate financial portrait of their individual customers in history including information about transactions, financial holdings, location, biometrics, user experience and social media feeds.

They have the potential to know where customers shop, how much they spend, the strength of their cash flow, their borrowing capacity, the financial dreams that motivate them — and much, much more.  While this amount of data about a consumer would make a retailer such as Amazon or Apple salivate, financial institutions struggle to utilize it to differentiate themselves with personalized service while at the same time monetizing their digital channels.   

There is an urgent need for FIs to act on this advantage — or risk being outflanked by rivals from inside and outside the banking industry. A recent report from Celent entitled “Defining a Digital Financial Institution” listed data analytics as one of the five elements critical for any institution wishing to develop a digital strategy that will attract and retain members.  The report also noted that most banks and credit unions struggle to use data analytics to their advantage because the information they need is buried within legacy systems or service channels controlled by third party providers.

Another report, “Transforming Data Into Dollars for Financial Institutions” published by Javelin, had this to say about data and the challenges facings institutions that wish to be competitive in the digital era: 

“…the industry is at a pivotal point that will require a philosophical shift regarding the strategic value of data mining. The important difference is that FIs typically use data today to perform services on behalf of customers to detect fraud, authenticate customers, and take other behind-the-scenes steps to ensure their money is safe."

“Going forward, innovative FIs will mine data to empower customers. They will dispense relevant information, individualized insights, and actionable personal finance advice that enable customers to make smarter day-to-day decisions and achieve a greater sense of financial control as they bank, shop, pay, borrow, save, and invest.”

Both the Celent and Javelin reports are indications of an increasing focus in the industry on the value of this data in terms of providing personalized services to customers and better bottom line performance to financial institutions.  To unlock this potential will require that these institutions move from a reactive stance to a more strategic approach to their digital channels. 

Tim Dailey of Cornerstone Advisors recently provided a list of innovative, young FinTech companies that deliver solutions architected for the future instead of built on the legacy systems of the past.  Taking a hard look at those companies and considering where to place their bets for the future would be a good exercise for many FIs to undertake.

When evaluating these and any other solution providers, banks and credit unions should look for those that feature the following advantages:

  1. A single code base that provides a comprehensive set of services deliverable to any digital access point;

  2. Embedded, automated categorization of all transactions conducted by all members using digital channels;

  3. Capability within the solution to do data analytics and segmentation; and

  4. Scalable, proven architectures that can embrace a future that includes exponentially larger amounts of digital activity than is seen today. 

We have all heard the popular saying that insanity is repeating the same thing over and over again and expecting a different result.  More FIs today understand that what they have done to date must be replaced with a different logic. 

The logic they choose must include ways to personalize the digital experience with value-added services and products tailored to the individual members needs.  Luckily, firms like Cornerstone, Javelin and Celent are providing guidance and recommendations that can form a foundation for building a strategy to replace the tactical mindset that has persisted to date.