Current personalization efforts from financial services firms are still nowhere near the level necessary to engage increasingly demanding customers.

Banks, investment firms, insurance companies and other financial services firms must rethink personalization and focus on driving customer engagement and loyalty, according to a new report by American market research company Forrester.

In a paper titled Financial Services Firms Need to Rethink Personalization, the firm explains that financial services firms are currently more focused on tactical business goals and selling products rather than addressing customer needs. This results in personalization efforts missing the mark as they are narrowly applied, create awkward interactions, lack customer value, or lack of understanding of a customer’s context.

According to the paper, US online adults, especially Millennials, want personalized financial help and services. A survey found that 41% are interested in receiving alerts if they aren’t capable to cover upcoming expenses, 32% are interested in a financial wellness scoring tool that is calculating using one’s financial situation, and 30% are interested in being offered financial products that they are eligible for based on their financial situation.

Currently, customers in many countries view traditional financial services as largely undifferentiated, despite financial institutions’ claimed efforts. Nearly one in three US online adults believe that “all banks are basically the same,” and about one in four think that “all investment firms are basically the same.” Forrester’s 2018 US Banking Customer Experience Index also found that customers believe there’s still a lack of differentiation among financial services firms.

With the entry of bigtechs into financial services and the rise of fintech companies, traditional financial services firms are facing strong competition and “need to do more to truly differentiate their brands and remain relevant to customers,” the report says.

The paper recommends financial services firms to leverage real-time data and insights to deliver contextually relevant experiences and advice. This will enable them to differentiate themselves from competitors, deepen engagement and develop relationships. Financial institutions should also focus on providing the best interaction for customers instead of the next best offer.

The report cites the case of Metro Bank in the UK, which continually asks customers whether personalized insights are adding value. Meanwhile, Sberbank in Russia offers personalized financial tips and recommendations in its mobile app and asks customers whether those insights are relevant or not to optimize its machine-learning models.

It’s also critical for financial services firms to be aware of their clients’ life events. Bank of Ireland, for example, changes the experience it creates around life events, moving the focus from the products that could be useful to understanding customers’ needs and communicating in a way that’s appropriate at that time. For example, someone looking for a family car will respond to a message that emphasizes safety, while a younger person might be more influenced by style.

Another example is USAA, which uses personalization to help members with stressful situations such as leaving the military by providing members with information and advice that takes these particular events into account.

The report recommends financial institutions to follow on the steps of leading firms that have championed personalization by engaging customers, delivering value, deepening relationships and creating trust in four ways: providing contextual and relevant information, guiding customers to what they need, advising customers of other things they may need and extending their options, and showing they care about the customer.

The paper cites examples such as digital bank Monzo from the UK, which helps customers traveling abroad by letting them know the local exchange rate when they arrive, Royal Bank of Canada’s digital savings account NOMI Find & Save, which analyzes customer spending to seek extra money that can automatically be set aside as savings, and BBVA in Spain, which provides a personalized financial health scoring and recommendation tool called BBVA Bconomy.

Featured image credit: Image: BBVA’s Bconomy Provides Personalized Recommendations, Financial Services Firms Need to Rethink Personalization, Forrester, September 2019