Money creates a chain reaction; the more you have, the more you can earn. But it can have an exponential adverse effect if you don’t have it. This also applies to data. Large amounts of information improve banks’ ability to support customers, but financial institutions need to know how to use it.
Today’s banking customer is in dire need of banking guidance whether it be spending, saving, borrowing, planning, or all of the above. After all, two in three Americans struggle with their finances these days.
In addition, their loyalty shifts easily as neobanks are more accessible with instant onboarding processes. Modern banks are challenged to familiarize themselves with their customers, delve deeper into the reasoning behind their financial decisions, and increase their loyalty.
But without knowing what data to look for and how to understand the individual needs of their customers, common approaches and loosely categorized consumer profiles ensure that customers are excluded from adequate financial support and the same financial position, if not worse.
If a consumer wants to share their life with you, they must first understand the real benefit of doing so.
Let’s take a look at how modern banks can use data and build trust to improve the financial health of consumers.
Key pain points for modern banks
Banks should recognize that past financial history and characteristics of those categorized as similar only represent: preliminary reflections of the customer at hand.
Suppose a young woman was interested in a $1,000 coat. Algorithms told you women her age were buying this, and your system started pushing notifications for BNPL. But what happens 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, it can resort to credit card payments. This would extend the term of that BNPL debt and add additional interest on top of it. Even if she did find a new job, she might have put herself through more financial hardship, negating BNPL’s advantage.
It’s about the whole picture. Open banking provides fintech banks with information from their customers’ primary accounts to inform you where they shop, how much they spend on certain products, whether they own a car and insight into their family. However, staying abreast of the latest data protection rules will require you to constantly adapt your activities.
Modern banks must ensure that they comply with privacy and security regulations to keep their customer data safe. Consumer data rights law and the Gramm-Leach-Bliley Act (GLBA) require banks to use data strictly for reasons agreed upon with the individual’s consent. 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 address their data pain points.