By Nathaniel HarleyCombined with recent social movements addressing inequality, we are seeing an increase in niche and hyper-personalized banking offerings that address the needs of targeted demographics, communities, professions and minority groups. This presents a major opportunity for community and regional institutions to win back customers in the way that they’re uniquely positioned to—by taking their relationship-based approach online.
With new technologies at their disposal, community banks have an opportunity to build on the trust they’ve earned within their communities. Traditional and digital-only challenger banks have started to leverage these niche strategies to capture valuable customer bases from female and minority business owners to gig economy workers.
Why hyper-personalized banking matters
Personalized digital experiences are taking over everything from food delivery to makeup or clothing subscription services. The fact is that today, people expect to be treated uniquely and in a way that aligns with their values, in every business relationship, or they might abandon it.
For financial institutions, this means going far beyond segmenting and microtargeting. Instead, it requires hyper-personalization—the ability to use data and analytics to develop a deep understanding of each customer’s needs and desires and orchestrating a set of tailored experiences across digital and human channels.
There is no such thing as too small to succeed. Smaller banks that focus their resources can be just as high performing as larger ones, but that focus is key. In fact, more than 75 percent of high-performing banks with less than $2 billion in assets have an efficiency ratio in the top quartile of community banks nationwide, but the path to how they get there varies greatly.
As net interest margins continue to decline, depth in differentiable niches offers a stronger market brand and a chance for revenue growth while cushioning lulls in the economy. Rising interest rates mean deposit competition is just starting to intensify. In the second quarter of 2020, FDIC data showed a $2 trillion surge in bank deposits as consumers and businesses became more conservative with their cash in light of the pandemic—more than ￼83_percent of that surge went to banks ￼with at least $250 billion in assets.
“Hyper-personalized banking” is a unique aspect of banking that leverages data and analytics to deeply understand customer needs and deliver services tailored to those specific needs. These hyper-personalized services benefit consumers by addressing the specific challenges they face and offering unique solutions. Through a multitude of data sets, banks can build a more comprehensive picture of customer behavior, including online interactions, geo-location data and aggregated payments behavior. They can use that insight to help predict the needs and desires of their customers.
For banks targeting a more narrow customer base, hyper-personalization provides avenues to develop targeted products with which mass-market banks cannot compete. Consider Daylight, a recently launched LGBTQ financial app and prepaid card (offered on a white label basis by Metabank) or the ranks of the nearly 20 Black-owned banks regulated by the FDIC. While accommodating all customers in compliance with fair banking laws, these hyper-personalized banks have special mission to meet the unique and often highly specific needs of consumers in designated communities or life situations. And rather than having to provide lowest-common-denominator products, they have a smaller, data- and insight-driven area in which the bank can focus its resources and capital.
It’s simply not feasible from both an economic and logistical standpoint for a nationwide money center to have products tailored in this way. But for community banks, it lowers cost structures as the institution can focus on serving a more limited set of requirements and personas. Furthermore, it assures customers that the bank is deeply ingrained in their communities’ needs, building a level of brand affinity and loyalty that drives higher retention and greater share of wallet.
While community banks are already built on their customers’ trust—that’s often the reason they opt for their local bank in the first place—focusing their attention on specific groups with specific needs helps strengthen that community trust.
How to find your niche
Hyper-personalized banking not only drives growth, but also creates operational efficiencies for the bank. Creating more comprehensive views of customers to build meaningful insights helps break down data silos, making it easier to efficiently identify and address a key customer need that was otherwise overlooked.
When considering what types of offerings to develop, look at customers who funded high or low amounts or increased or decreased balances over time. Look at where these customers come from, how old they are, what services they typically use (or don’t use), the challenges they face and create a lookalike audience to inform the product offering.
Another good place to start is with the bank’s mission and values. What is it about the bank that makes it unique or special in the community? Does that attract certain customers and are there adjacent customers that could be attracted with a more personalized offering in line with the bank’s values?
Take Flushing Bank’s digital branch BankPurely for example. Before embarking on creating the digital bank, it looked at the competition: What were they doing well? The bank asked: How could we possibly improve? They wanted to bring community banking back to its roots as a social experience: the central town hub, the place where someone would run into neighbors and catch up on the latest news or learn what new businesses were launching down the block, and get recommendations on where to go and what to do. It was all about connecting and networking with others—and being part of something bigger than oneself. They realized that they didn’t need a fleet of bankers, but instead, a rather small team passionate about making an impact and eager to redefine the community banking experience.
But they also knew that they couldn’t create this type of experience for every customer. Instead, they recognized that customers with a heightened awareness of environmental and social issues were more interested in this type of interaction. Targeting these customers through values of sustainability and revitalization as core components of how the bank operates gave these customers a personalized experience that no technologically advanced money center bank could provide.
Key considerations when going hyper-personalized
Although there’s a clear benefit to providing personalized offerings, the fact is that most community banks don’t have the resources or capital to devote to internal R&D. However, for community banks, growth comes from supporting and catering to the communities they serve, so investing in hyper-personalization creates a better experience for customers who might otherwise go with a money-center bank for convenience.
In order to achieve this level of personalization, banks must look for solutions and partners that help them evolve their digital offerings to better find and capture these niche customers. While legacy banking technology doesn’t make it easy to roll out new brands or products with unique characteristics and messaging, there are new, more agile platforms that help banking institutions get to market faster and continue to refine their tactics. Among examples of this are solutions that give bankers the power to change rates and marketing copy for their account-opening platform in real time and at no cost. This does away with the former model of paying technology vendors by the hour for development work and waiting weeks for those changes to be made.
A key ingredient for success when building and promoting a hyper-personalized solution is data. Banks need access to data that helps them better understand and effectively reach their target customers. Digital banking platforms are now offering data that is accessible and easily analyzed and many even provide automated insights based on the data. These insights can guide the context and strategy behind targeting a certain niche set of customers.
Marketing automation tools are another great way to reach specific customers in a streamlined way. Using an account opening tool with marketing automation built-in is an extremely effective way to reach and convert the ideal customer. It also enables you to leverage your data to create marketing campaigns that feel hyper-relevant to the customer’s financial needs based on key life events like marriage or homeownership.
The future of community banking is hyper-personal
Being able to serve people with highly personalized products at a time when they need them is ￼huge—it puts financial services on the customer’s terms. As an industry that provides such a key aspect of everyday life, financial services should cater to the customer, not the other way around. With new technologies at our disposal, banks have the opportunity to fill many of the gaps in our financial industry. They can create checking accounts for the underbanked that allow them to build back up their credit. And they can create digital branches specifically for kids to help boost their financial literacy and ensure a sustainable financial future. The possibilities are endless, but the onus is on the banks to seek out new partnerships and technologies to evolve and fill in the gaps on those possibilities.
Nathaniel Harley is the CEO and co-founder of MANTL, a technology company helping community banks thrive.