Money creates a chain reaction; the more you have, the more you can earn. But it can have an exponential negative effect if you don’t have it. This also applies to data. Large amounts of information improve banks’ ability to support their customers, but financial institutions need to know how to use it.
Today’s banking customer is in serious need of advice from banks, whether it’s spending, saving, borrowing, planning, or all of the above. After all, two out of three Americans now struggling with their finances.
Moreover, their loyalty changes easily, given that neobanks are more accessible with instant onboarding processes. Modern banks are challenged to learn about their customers, deepen the reasoning behind their financial decisions, and improve their loyalty.
Yet, without knowing what data to look for and how to understand their clients’ individual needs, blanket approaches and loosely categorized consumer profiles leave clients excluded from adequate financial support and in the same financial situation, if not worse.
For a consumer to share their life with you, they must first understand the true benefit of doing so.
Let’s see how modern banks can use data and build trust to improve consumer financial health.
Major pain points for modern banks
Banks should recognize that the financial backgrounds and characteristics of those classified as similar represent only preliminary thoughts of the customer at your fingertips.
Suppose a young woman is interested in a $1,000 coat. Algorithms told you that women his age bought it, and your system started sending notifications for BNPL. However, what if the woman loses her job? What if she can’t make her BNPL payment?
BNPL can be a convenient way to make large purchases with attractive interest rates, but in an emergency they might resort to credit card payments. This would extend the life of this BNPL debt while adding additional interest on top. Even if she finds a new job, she might have had to face other financial difficulties, which negates the benefits of BNPL.
This is the whole picture. Open banking provides fintech banks with information about their customers’ primary accounts to let you know where they shop, how much they spend on certain products, if they have a car, and family information. However, staying up to date with the latest data protection regulations means you have to constantly readjust operations.
Modern banks need to ensure they adhere to privacy and security regulations to keep their customer data secure. Under consumer data rights legislation and the Gramm-Leach-Bliley Act (GLBA), banks must strictly use data for agreed purposes with the consent of the individual. They must ensure that consumers understand how their bank uses their personal information with third parties.
Here are three steps modern banks can take to solve their problems with data.
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