How Digital Money Management Keeps Banks Relevant

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At the end of the day, the bloodiest battleground in is “real-time analytics for relevance in the financial relationship, and the partnerships that go into that relationship that allow that to happen.” This observation by Chris Skinner, founder of The Financial Services Club, is absolutely on point.

Banking is really about leveraging data to provide insights to customers just when they need it, in the way they prefer, through physical or digital channels. This means offering a delightful experience every time customers interact with their bank. But for this to happen, need the right partners.

THE RELEVANCE STRUGGLE IS REAL

Let’s face it: banks are struggling to stay relevant in their customers’ lives.

When your customer does not know her branch director’s name anymore, or when customers avoid going to the bank more than their dentist’s office, it means the bank is losing relevance. 

When customers only check their account balance, withdraw cash from the ATM and order a transfer from time to time, the Bank is not being relevant.

When customers are used to positive digital experiences with Apple, Google or Amazon, and don’t find a similar experience when dealing with their Bank, the Bank does not meet new generations’ expectations.

When customers get an instant loan from a new online lending platform, the bank is getting dis-intermediated. When customers are increasingly looking at crowdfunding and crowdlending platforms to make a better use of their money, the bank is out of the game.

As the above examples illustrate, relevance is the name of the 21st century banking game.

HOW TO STAY RELEVANT IN THE DIGITAL ERA

So how can banks stay relevant, or even gain relevance, when customers interact less and less physically, are lured by alternative options and even avoid dealing with the Bank?

Simply by impacting customers with the right solutions at the right time in the right way.

I know – easier said than done!

The best place to start is with the core function of banking: help customers better understand and manage their money. Basic, right?

But wait – which customers are we actually talking about?

The answer is all of them: the ones that are barely scraping by right up to the ones with money to burn. By all means, their bank should be reaching out to each and every one with properly segmented educational material, physical interactions and digital tools. Proactively and timely, at the different stages of their life.

To illustrate the potential contribution of Management (or PFM) to improving the lives of all kinds of customers, let’s separate them by saving capacity* (i.e. amount of disposable cash at the end of each month) and take a closer look. Depending on their needs and priorities, I’ll show how each customer uses the PFM features most relevant to their day-to-day financial life.

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(*Separation by saving capacity is done for the sake of the argument, with no intention to oversimplify)

PFM FOR CUSTOMERS WITH LIMITED SAVING CAPACITY

These customers will generally be extremely cautious with their spending, withdrawing a maximum of around $50 from the ATM at a time. You know the type: The odd extra purchase. Minimal savings.

What these customers will love is the ability to visualize their expenses, which also come automatically categorized. They are more likely to set budgets for each category to effectively track weekly spending. Once they understand the meaning of Ok-to-Spend, they will check it often to eliminate those nasty, embarrassing surprises – no more “Card Declined” or “Insufficient Funds”. 

Naturally, these customers love discounts and will appreciate receiving highly relevant offers in line with their spending habits. With the right software, their bank will be able to use machine learning algorithms to match merchant offers with customers’ purchasing behaviour at key moments in their buying journey. Before making any purchase, these customers might even check their app to see what-if  they make the purchase, and how it will impact their balance and budget for that category.

Armed with these digital tools, the bank is truly helping customers with limited saving capacity to spend smarter and budget better. With this newly found discipline, such customers could even begin to start saving a little!

PFM FOR THE SAVINGS-CAPABLE (CASH-FLOW POSITIVE) 

These customers generally focus on building future savings despite holding some debt, perhaps from financing their University degree or buying a car or acquiring a property. Still, they have a higher capacity to spend, and should therefore take care to spend and invest wisely.

Ok-to-Spend is an especially useful indicator for them since it factors in all direct debits, contributions to savings goals and even identifies spending patterns. The other side of the same coin would be Ok-to-Save which will become a monthly reference to build even more savings up.

Automatic categorization will shed some light on their spending and possibly help correct some (bad) spending habits. The good planners will start setting budgets online to better control expenses and creating savings goals to fund a recently announced wedding or summer holidays to Europe next year. Savings-savvy customers will especially appreciate perfectly-timed, personalized alerts and push notifications received from their bank, which is helping them gain full control of their financial situation without being overly intrusive or irrelevant.

Finally, cash-flow positive customers can get a broad overview of their finances and forecast and anticipate expenses looking at their personal financial calendar. This feature improves their receptivity to relevant merchant offers, product recommendations and financial advice that are relevant to their actual financial situation and lifestyle preferences.

PFM FOR AFFLUENT CUSTOMERS WITH HIGH SAVING CAPACITY

In my early-days experience in private banking, I learned that wealthier customers generally keep a very close eye on their money (maybe that’s why they’ve been able to accumulate so much) and can even be the greediest!

However, their higher capacity to save does not mean they don’t (want to) control their spending – a common misconception. Visualizations are welcome, and not only for their investment portfolios.

Actually, having an aggregated view of all their bank and card accounts, automatically categorized, visualized and analyzed, is a kind of nirvana very few high-savers have reached with their bank.

These customers are very used to receiving and even paying for financial advice, having their portfolio rebalanced, and taking risky investment decisions – but what does their spending actually look like? No clue. What if they are losing part of their investment gains in bad spending habits? No idea. Of course, some affluent customers won’t care – but others will.

Furthermore, they and their wife (or husband) will love receiving luxury merchant offers on their smartphone that fit their exquisite lifestyle and social status. 

 

By being proactive, pushing the right notifications at exactly the right time, and providing  personalized recommendations, banks can become or and remain relevant in their customers’ lives, which is absolutely crucial in the era of digital transformation.

Banks ahead of the customer experience curve are already (re)engaging with customers on a regular basis. They are already (re)building their relationships in a digital world. They are slowly but surely becoming the financial companion their nature mandates.

What’s even better is the full spectrum of customers would be grateful for such a delightful banking experience, each in their own way – even the ones who had previously lost faith. They would not be looking elsewhere, why would they?


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Xavier Marcillac is VP APAC at Strands and this post was originally published in Strands  Pulse