THE PERSONALIZATION IMPERATIVE...Personalization in financial services is a sophisticated business. Institutions have to take into account a number of dimensions in order to understand

BANKING IN THE AGE OF ANALYTICS THE PERSONALIZATION IMPERATIVE

Supported by:

CONTENTS

Methodology

Introduction

Section 1:The business benefits of personalization

Section 2:Banking in the new data ecosystem

Section 3: Overcoming the roadblocks to the age of analytics

4

5

6-10

11-14

15-16

METHODOLOGY

This report is based on research conducted by MoneyLIVE and Earnix in 2019. We surveyed over 300 banking professionals, working in a variety of financial institutions of all sizes – including global organizations.

AUDIENCE PROFILE

Analytics /

Busin

ess

Inte

lligence

Custom

er exp

erience

General m

anagement

Legal / Com

pliance

-

Operatio

ns / D

igita

l tra

nsform

ation

Mark

eting / C

omm

unications

Product d

evelopm

entSales

Strate

gy / In

novatio

n

Tech

nology

-

FinTe

ch p

artnersh

ips

BANKING IN THE AGE OF ANALYTICS4

METHODOLOGY

5EARNIX AND MONEYLIVE

INTRODUCTION

Banking is returning to its roots. During the prime of the local branch, consumers experienced banking as a highly personalized service, with the bank manager and tellers able to greet customers as individuals, recognising and anticipating their needs based on a day-to-day understanding of their behavior. That personal service has been eroded in recent decades, with customers increasingly interacting with their banks via phone or digital channels. It is no wonder customers think their banks neither know them1 nor work in their best interest. Consumers claim to see little discernible difference between the big banks. Accordingly, banks rightly fear becoming merely a commoditized service. They face a real danger of being pushed down the value chain and being supplanted in the customer relationship by other organizations with stronger brands and deeper customer understanding.

Customers are growing impatient with a one-size-fits-all banking experience. Their interactions with digital pioneers, such as Amazon and Netflix, have reshaped their expectations and they now expect their banking experiences to match the best of tech – personalized, frictionless and innovative. Banking-as-usual is no longer good enough.

But get this personalization imperative right and customers will stay with their bank and buy more. Among our surveyed banks already delivering on the personalization agenda, 87 per cent report increased customer engagement, 85 per cent anticipate improved customer retention, more than six out of ten (62 per cent) report improved revenue per customer and three out of four have seen a marked improvement in sales and marketing conversion rates.

These results are compelling evidence that effective personalization not only captivates customers, it converts that attention into sales. Research shows that the technologies that underpin personalization – advanced analytics, the Internet of Things and artificial intelligence – are set to transform every aspect of life within the next decade. In MarketforceLive’s survey among 950 financial services leaders, 8 out 10 said they expected AI-driven analytics to deliver improved convenience in consumers’ lives.

of those that have achieved advanced

personalisation report increased customer

engagement

87%

143% of customers think their banks don’t know them, according to research by Celent, August 20182Just 36% of British consumers trust banks to work in their customers’ best interests, YouGov May 20173Global Consumer Banking Survey, EY, June 20164A world shaped by predictive analytics, Sopra Steria/MarketforceLive, 2017

62%

report improved revenue per customer

75%

have seen a marked improvement in

sales and marketing conversion rates

80%

of banking and insurance leaders believe AI-driven

analytics will deliver improved convenience

in consumers’ lives

THE BUSINESS BENEFITS OF PERSONALIZATION

Those bankers who have the analytical foundation to deliver personalized products and services will rapidly pull ahead of rivals. Personalization will increase both customer satisfaction and loyalty, while simultaneously improving business results. Our research shows a reframing of the competitive battleground already underway, with those offering advanced personalization not only winning more customers but also achieving more revenue per customer.

So what does advanced personalization look like? It’s the capability to use analytics to generate insights from a wide variety of data – whether internal or from third parties, whether real-time from connected devices and the Internet of Things (IOT) or from historic data sets. In this way, real-time adaptations can be made to pricing and product configurations, thus enabling the creation of a personalized offer that fuels an experience customers find compelling.

Those pioneers able to acheive this – about one-in-ten of our surveyed banks – are demonstrating early wins that are informing mainstream industry thinking. Financial institutions increasingly recognize that they need to sell like the digital leaders of today. Those respondents that have yet to achieve advanced personalization – the vast majority of our surveyed banks – already believe it will have a positive impact across all aspects of their business, even though they have yet to put this to the test.

Three years to close the personalization gapThere is now a window of opportunity for banks to close the gap with digital personalization leaders. According to our research, 65 per cent of bankers believe customer segmentation, however finely calibrated, will be too crude to engage customers within just three years, and customers will come to expect individualized personalization as standard in products and services.

Indeed two-thirds of our surveyed bankers believe individualized product personalization will be a pre-requisite of success within three years. Almost nine out of ten (88 per cent) agree that, in an age of data-driven convenience, customers will be increasingly turned off by standard banking products and add-ons, instead demanding offers personalized across price, product, and point-in-time dimensions. Whilst there appears to be a three-year window for banks to catch up, they must act without delay: half our respondents believe only the first movers in terms of analytical sophistication will ever reach the levels of personalization customers will come to expect.


Within 12 months % of respondents who plan to use advanced analytics for...

Level 1 – Segmentation based on demographics only

Level 4 – Individualized personalization adjusted in real time based on data from connected devices

Level 3 – Individualized personalization (tailoring to an individual rather than to a market segment)

Level 2 – Segmentation based on behaviors of the individual consumer29%

43%

20%

8%

66% of our surveyed bankers believe individualized product personalization will be a pre-requisite of success within just three years


75% think customers will expect individualized personalization to a market-of-one for products and services

80% think customers will expect individualized personalization within marketing communications

66% believe individualized product personalization will be a pre-requisite of success

Within three years…

88% believe that, in an age of data-driven convenience, customers will be increasingly turned off if they are offered standard banking products and add-ons rather than products personalized to their individual needs

Analytics, not data, the key to competitive edge

There is a clear capability gap between the industry’s personalization ambitions and its current capabilities, with just 11 per cent of our surveyed banks at present able to offer individualized personalization adjusted in real time based on various data sources. Instead, we find the majority (70 per cent) of the industry continues to rely on broad segmentation practices, even though they acknowledge their limitations when it comes to engaging today’s connected customers.


88% agree that in an age of data-driven convenience, customers will be increasingly turned off if they are offered standard banking products and add-ons, rather than products personalized to meet their individual needs

Banks cannot claim to be held back by a lack of data. In today’s hyper-connected world, it has never been easier to learn about the individual circumstances, behaviors and preferences of their customers. And, in the era of Open Banking, in which, in some countries5, banks are being mandated to share permissioned data via application programming interfaces (APIs), this data has never been more readily available. Indeed, more than four out of five of our surveyed bankers believe that, where all banks are able to access the same customer data via open APIs, it will be the quality of analytics, rather than quantity of data, that will be the source of competitive edge.

Advanced analytics – autonomous or semi-autonomous algorithms that use techniques involving machine learning, simulation, visualization, and forecasting to help companies make sense of vast data sets, including real-time streaming analytics – is the enabling technology of the personalization agenda. These smart algorithms can identify patterns to make proactive personalized recommendations and generate previously unimaginable insights to define, design, and deploy compelling products and services. Yet our research shows this powerful technology is under-exploited by the banking industry, with the majority (59 per cent) barely scratching the surface when it comes to new data sources and advances in analytics for personalization purposes. Six out of ten say their organization’s analytical capability is not yet sufficiently advanced to make optimum use of the deluge of new data sources available in the Open Banking era, giving better-equipped rivals a clear run at meeting customers’ personalization expectations.

85% agree that, in the future, it will be quality of analytics rather than quantity of data that will be the source of competitive edge

60% said their organization’s analytical capability is not yet sufficiently advanced to make optimum use of the deluge of new data sources

5Great Britain, Australia, etc.




pricing product personalization

marketing lending decisions

80%

100%

60%

20%

40% 86% 92% 92%90%

A slow start but moving in the right direction…

Personalization in financial services is a sophisticated business. Institutions have to take into account a number of dimensions in order to understand an individual’s life stage, associated life events and propensity to behave in a particular way, and then tailor their products and services accordingly. They must also define parameters that ensure a product is not only compliant from a regulatory perspective but also in alignment with the bank’s internal revenue model and risk tolerance. It’s little surprise that banks have taken a cautious approach to date, with fewer than one in five (19 per cent) making extensive use of advanced analytics to personalize products or to personalize pricing (16 per cent). Banking may have something to learn from the insurance industry when it comes to pricing. With pricing to the individual lying at the heart of insurance, it is no surprise that insurers are ahead of the banking pack, with more than one in five making extensive use of analytics to personalize pricing.

The banking industry is accelerating its analytics capability, however. Our survey finds that, within the next 12 months, 86 per cent plan to use advanced analytics for pricing and more than nine out of ten for product personalization, marketing and lending decisions.


…as investment in AI, machine learning and analytics ramps up

Delivering on the personalization agenda will require banks to upgrade their analytics capabilities in order to mirror the customer-obsessed experiences pioneered by the digital leaders of today. The likes of Amazon, Facebook and Alibaba leave no data stone unturned in their bid to unearth insights into their customers’ needs, with their superior analytics capabilities allowing them to build a holistic view of each customer. This allows them to deliver highly relevant and personalized offers – just-in-time interactions and personalized recommendations that convert browsers into customers. Our survey finds the investment to underpin this kind of personalization is already underway in banking, with more than half of our surveyed banks investing significant sums in machine learning and artificial intelligence in order to close their capability gap.

51% are making significant investments in machine learning and AI

46% are making significant investments in analytics

44% are making significant investment in open APIs

A data-rich universe – analyzed, dissected and managed by hugely sophisticated algorithms – will transform how we live our lives. From driverless cars to personalized medications, from smart homes to automated payments, our lives will be connected, recorded and analysed, and should be safer, healthier and more productive as a result. Our finances will be smarter, with payments automated and financial products customized on a minute-by-minute basis to reflect our changing circumstances and preferences based on real-time data.

BANKING IN THE NEW DATA ECOSYSTEM

88% believe that using analytics to drive individualized personalization of products will open up new potential for banks to expand into more profitable customer offerings

This is a very different model from the low-margin, one-size-fits-all banking model of today, and it is a mode that banks are keen to embrace. 88 per cent of our surveyed bankers believe that using analytics to drive individualized personalization of products will open up new opportunities to expand into more profitable customer offerings.

Our findings suggest that the rise of analytics-driven personalization will enable banks to transition from the nuts-and-bolts of daily banking into more lucrative financial management services, working hand in hand with customers to help them make better financial decisions. This is an opportunity to reposition the industry from highly commoditized corporates that capitalize on customers’ financial risk, defaults, mistakes and hardships. Banks have the opportunity to become trusted advisors and partners, offering tailored products and services that help customers succeed in living better lives.

The best part: survey data suggests this radical repositioning will be complete by 2022.


68% of banks expect individually personalized product bundles that draw together the appropriate tailored combination of existing products to be commonplace

65% expect individually personalized financial management services to be commonplace

61% expect individually personalized lifestyle management services to be commonplace

Within three years, in their home market …

Increasingly, bankers expect their customers to turn to them for a wide range of services, not just traditional financial products. Within three years, almost two-thirds (64 per cent) predict they will offer value-added services that help customers manage their lives, as well as their finances, better – and more than half (56 per cent) think they will be offering these services on an individually personalized basis.

As consumers increasingly experience these tailored value-added services, 95 per cent of our respondents from both banking and insurance think their customers will come to expect a similar level of personalization and convenience from traditional core financial products. In banking, a debit card with a customized photo or an ATM that immediately recognizes your preferred language will seem mere window-dressing compared to a budgeting tool that supports your life goals or a mortgage product that can accommodate the income swings of maternity leave and childcare costs.

64% predict they will offer services that help customers manage their lives, not just their finances, better within three years

95% of respondents from across banking and insurance think that as customers increasingly experience tailored value-added services, they will come to expect a similar level of personalization and convenience from core financial products


Banking, not as we know it

This new type of banking will require a new type of banker, which may not even be human. As sophisticated algorithms, capable of making calculations, risk assessments, and behavioral forecasts are deployed, far more accurate andrapid real-time personalization insights will be delivered. Speed and deployment agility will be required to enable this new normal.

Customers too will increasingly rely on smart machines rather than their own research to make financial decisions. Open Banking has already given rise to new entrants offering a vast array of new services, from on-demand insurance apps to robo-investing, enabling connected customers to hand select a suite of financial products – to essentially build their own customized virtual bank.

Yet in a world of unlimited choice, how will customers know which products are right for them, whether from a product, price or point-in-time perspective? Our research suggests automation will help, with almost six out of ten (59 per cent) of our surveyed bankers expecting that, in future, customers will have less active input into the selection of their individual banking products, with purchasing decisions often being pre-authorized and automated for convenience. Of our respondents, 63 per cent think AI-driven banking product selectors will ultimately choose only those products that are perfectly tailored to the customers’ needs.

59% expect customers to have increasingly less active input into the selection of their individual banking products, with purchasing decisions often being pre-authorized and automated for convenience

63% think AI-driven banking product selectors will ultimately choose only those products that are perfectly tailored to the customer’s needs


It pays to be personal

This new breed of banking, where machines do the heavy lifting so that a customer’s needs – both financial and non-financial – are automatically anticipated and fulfilled, saves people both time and money. Our respondents believe this automation is a service for which customers will be willing to pay. Indeed, almost two-thirds (65 per cent) of our surveyed bankers think customers will be willing to pay more for banking products that are tailored to meet all their personal priorities. And, across financial services, there is even greater positivity, with 75 per cent of insurers expecting the same.


65% of bankers think customers will be willing to pay more for banking products that are tailored to meet all their personal priorities


OVERCOMING THE ROADBLOCKS TO THE AGE OF ANALYTICS

Banks acknowledge the potential of personalization to transform the customer experience and deliver both increased customer satisfaction and improved business results. Yet, as we have seen, most banks have gotten off to a slow start. Although they are now investing in AI, machine learning, and open APIs, there is still significant ground to cover to close the analytics capability gap.

Our research highlights a number of significant roadblocks that will require an overhaul of systems, processes and leadership. The bulk of the industry continues to wrestle with the obstinate problem of legacy systems, cited as a significant roadblock by seven out of ten (71 per cent) of our respondents. More than two-thirds (67 per cent) say the sheer level of investment required is a significant barrier to achieving analytics-driven, individualized personalization, in part due to so many competing calls for that investment (cited by 60 per cent of respondents), in part because the return on investment is as yet unproven (cited by 50 per cent).

Related to these budgetary constraints are leaderships issues, with too many senior managers not understanding the importance of analytics (58 per cent) or failing to draw up a coherent strategy for its deployment (50 per cent). Skills shortages are also a looming issue, with a lack of in-house analytical skills a significant barrier for three out of five (60 per cent) of our surveyed banks.

Roadblocks to analytics-driven personalization

80%

100%

60%

40%

20%

Legacy systems

71%

Sheerlevel of

investment required

67%

Competing calls for

investment 60%

Lack of analytical

skills inhouse

60%

Unproven return on

investment 50%

No coherent strategy

50%

Lack of understanding among senior management

58%

Breaking down siloes to achieve effective personalization

As analytics-driven customer offers become more complex, pulling together different products and services in a unique configuration that can flex to meet a customer’s unique requirements will be increasingly important. As a result, banks will be forced to rethink every aspect of how they currently operate. More than four out of five (85 per cent) of our surveyed banks believe that the current banking model, where separate siloes deal with product, pricing, credit assessment and marketing, inhibits successful real-time, individualized banking product personalization. It is only by taking a holistic view of a customer - across lines of business - that banks will be able to succeed. Of our respondents, 92 per cent believe the integration of customer profitability, propensity to purchase, credit assessment and pricing will be key to effective individualized personalization. A call to break down banking siloes is not new – but it has never been more urgent. Responding to this urgency is, however, now being greatly facilitated by artificial intelligence and machine learning, with leading companies already adopting these technologies to bridge the silo gap.

The analytics revolution rewards first movers

Given the scale and complexity of these barriers, it is little wonder that just 17 per cent of our respondents can today offer real-time, individualized product personalization at the point of sale, whether it be mobile, in branch or even via voice assistants. Digital disruption typically rewards first movers, and those companies that harness the power of data-driven insights to deliver winning customer propositions will likely leverage their first-mover advantage to take out the competition. Our survey shows that many banks are well aware that frontrunners could open up a head start that proves impossible to close. Half our respondents believe it is only the first movers in terms of analytical sophistication that will ever reach the levels that customers will expect. Potentially, 4 out of every 10 of our surveyed banks and insurers that intend to achieve real-time, individualized product personalization at the point of sale over the next three years could already be too late.

85% agree that siloed product, pricing, credit assessment and marketing teams inhibit successful real-time, individualized banking product personalization

92% think individualized personalization will work best when customer profitability, propensity to purchase, credit assessment and pricing are integrated into a single view


Earnix believes that for Financial Institutions, personalization is key to increased customer satisfaction and loyalty as well as to improved business results.

Recognizing the complexities of financial products, Earnix provides an end-to-end Pricing and Product Personalization Software Suite, driven by world-class data science, analytical modeling tools, and integrated machine learning. The Earnix 3D Personalization Suite™ empowers Financial Institutions to offer the right product, at the right price, at the right time, while optimizing business KPIs, maintaining governance & compliance, and improving the enterprise-wide end-to-end product personalization and pricing process.

Earnix has been consistently innovating for Banks and Insurers around the globe for over 18 years. We have offices in the Americas, Europe, Asia Pacific, and Israel.

MoneyLive is a brand of MarketforceLive which, since 1987, has helped drive innovation across a range of sectors – Financial Services, Energy & Utilities, Transport & Logistics and Media & Broadcasting – through high-quality strategic events and B2B communications. Combining over 30 years of communications and research expertise, today MarketforceLive cultivates the most thought-provoking insight, most useful networking and learning opportunities and most impactful content-driven communication campaigns in all the industries it serves.

Corporate Headquarters

4 Ariel Sharon St.Giv’atayim 5320045 ILTel. +972-3-753-8292Fax. +972-3-753-8293

US Headquarters

Earnix Inc.191 Post Road WestWestport, CT 06880Tel. +1-203-557-8077

UK Office

Earnix UK Ltd.29 Throgmorton StreetLondon EC2N 2ATTel. +44-20-3875-0940

Corporate Headquarters

Marketforce Business MediaRegistered office: Gate House, 1 St John’s Square, London, EC1M 4DH


www.earnix.com www.marketforcelive.com/money-live

Documents

THE PERSONALIZATION IMPERATIVE...Personalization in financial services is a sophisticated business. Institutions have to take into account a number of dimensions in order to understand