Personalization repairs what digital transformation has broken.

We're becoming increasingly digital in everything. This has its advantages. For many organizations, it results in a lower cost to serve, and for customers, an improved customer experience. But there's a downside. The relationship between an organization and its customers has changed. In the (distant) past, you might have had personal contact, even if it was just over the phone, but now there are predominantly digital interactions.

An important development in digital marketing and customer service is personalization, and in its most ultimate form, hyper-personalization. In my opinion, (hyper)personalization is the way to reconnect with your customer. Relevance is the keyword here. How relevant are organizations, especially financial institutions, in practice?

The downside of digital transformation

My career in the financial sector began at a bank branch in Zaandam. As an SME advisor, I was responsible for a portfolio of entrepreneurs. At that time—the roaring nineties—almost every business customer had their own advisor, someone they could always call during office hours. Through that personal contact, you could advise a customer, whether solicited or unsolicited, and sell a solution at the right moment, considering the customer's situation.

Due to the digital transformation, which has primarily occurred over the last 15 years, the advisor has faded into the background, and the bank is primarily an app on your smartphone. As a business customer, but especially as an individual customer, you no longer have a personal relationship with your bank. Unless you have a large company or are a private banking client.

More digital and less personal?

From both the bank's and the customer's perspective, this might not be a problem. Due to digitization, banks have become more efficient. According to DNB (De Nederlandsche Bank), the cost-income ratio of Dutch banks was around 70% in 2009. The lower this percentage, the better the profitability, productivity, and competitive position. In Q2 of this year, the cost-income ratio of the four major banks in the Netherlands is around 50%. ING shows a positive outlier with a cost-income ratio of over 45%. Besides digitization, there are, of course, other factors influencing the cost-income ratio. Various Know Your Customer measures have also temporarily affected the cost-to-income ratio.

Many customers may appreciate digitization, meaning 'I can easily manage my banking affairs myself.' However, it's still debatable whether digitization has significantly contributed to a better customer experience, for instance, measured by the relational Net Promoter Score (NPS). Dutch banks aren't very open about their NPS. But let's assume that it isn't very high and ranges between -20 and +20, although Knab manages a respectable +39. The NPS of banks stands in stark contrast to, for example, Coolblue's NPS (+67).

Based on the annual bank monitor by the Dutch Consumer Association (research among consumers), one could cautiously conclude that banks that are more personal and/or have a better (emotional) bond with their customers through their positioning and branding tend to receive better ratings.

Bank Monitor Consumers' Association 2023 versus 2016

It's remarkable that ING, self-proclaimed as a digital pioneer striving for superior customer experience, ranks last in the bank monitor. However, with over 10.5 million customers, they remain the largest bank in the Netherlands (compared to the roughly 3 million customers of RegioBank, ASN Bank, and SNS, all part of the Volksbank).

From relationship-oriented to transaction-oriented

Especially the major banks have focused on digitization in recent decades, which has come at the expense of personal contact (meaning: contact with a human). While these banks previously operated on a relationship-oriented model, digitization has led them to shift toward a transaction-oriented model. Who still has personal contact with their bank?

Interactions mainly confine themselves to online activities (checking balances and making transfers). And for various so-called low-value interactions (collecting and activating bank cards, changing addresses), you no longer need to visit an office. Personally, I consider that a win as a customer. With the app on your smartphone, you have the bank in your pocket. Yet, the bank also misses contact moments that could have been used for solicited and unsolicited proactive advice (meaning: cross-selling products and services).

Banks now seek our attention through different means: 'advertisements' in the app, messages in your inbox, banners on the internet banking logout page, or during a phone call with the call center. And that's not always appreciated, especially if you receive too much advertising in the app ('Those endless #&*(@ advertisements are really starting to get on my nerves. I just want to handle my banking...'), too many emails or messages in your inbox (relevance inflation), or if the messages aren't relevant (due to inadequate customer intelligence).

The use of (big) data and applying customer intelligence is the chance for banks to become personal and relevant once again. I don't want to receive email newsletters or messages that, while personalized, aren't personal and relevant. I'd like the bank to use what they know about me to think along with me.

Personalization Maturity

How relevant are the messages and interactions from Dutch banks, and how mature are they in terms of personalization? The personalization maturity curve below is a useful tool for determining this.

On average, Dutch banks are still on the left side of the curve. Hyper-personalization is applied sporadically. Hyper-personalization goes beyond using basic customer data. It looks much more at behavioral data, such as browsing, purchasing, and other real-time behavioral data to understand what is relevant for the customer. In the most ultimate case, predictive analytics are used to determine the right moment for a specific message in the context of the customer, which goes much further than a next best action model.

The most ultimate form of personalization is one-to-one; as an individual customer, you receive a message that is truly relevant, not a one-size-fits-all message. It's an inbound message; based on your behavior, you're proactively approached. The data used to determine the message's relevance is real-time data. And the message reaches the customer via a touchpoint that suits the message and the customer's preferences. I prefer a few spot-on messages per year rather than an overload of irrelevant messages.

For example, an entrepreneur has a loan with a variable interest rate (customer data). Due to inflation, the interest rate is likely to rise in the coming years (context). The entrepreneur is interested in interest rate developments and has visited the bank's website several times, specifically the page about interest rate developments (predictive behavior). The entrepreneur mainly uses internet banking for banking activities (touchpoint). The bank can inform this entrepreneur through internet banking about the option to fix the interest rate.

This is likely a relevant message for this entrepreneur. As an SME advisor, I would have addressed a similar client about this possibility. Although at that time, you might have received a batch list (such a long list from a matrix printer) of all clients with a loan with a variable interest rate and made a round of calls.

What does [finno] think?

The track record of Dutch banks in terms of personalization isn't that strong yet; consider these cases from the past: ING and ABN AMRO. And although steps have been taken forward in recent years, both I and my entrepreneurial wife still encounter irrelevant messages from banks too often. Sometimes it seems as if Dutch banks have made little progress in personalization over the last ten years. And that's a missed opportunity.

In my opinion, hyper-personalization is the way to truly reconnect with your customer; to make the bank personal again. Relevance is the keyword here. The technology to make this possible exists. But technology alone won't suffice. You must approach personalization from the customer's perspective. Currently, it's often used to sell products. With personalization, highlight opportunities and risks for customers. Approach personalization primarily from a service-providing perspective. Using personalization subtly for sales is possible but is much more challenging in the financial sector. Apply consultative selling, not flat-out sales.

Finally, this week I posted the personalization maturity curve on LinkedIn. I agree with the comment Graham Hill made: 'The problem is that without putting the customer at the heart of personalization, it will always underdeliver, as we find today.

The above article was previously published in Dutch on www.finno.nl.

Photo credits: Unsplash.com – Brett Jordan