By Uday Akkaraju, CEO of BOND.AI
Today, 66% of Americans in the US are struggling with their financial health and 14% consider themselves completely vulnerable; In other words, most people living in the US cannot plan their lives with financial freedom.
At the same time, financial institutions collect transaction data from their customers, make loans and set interest rates, giving them the advantage of people’s financial health – their economic data.
Here’s why and how banks need to make use of customer data, tailor their offerings to customers’ financial needs, and generate higher revenue in return.
The challenges of financial health
The most pressing problems for populations facing financial difficulties are payday loans and their high interest rates. On average, payday lenders charge $520 in fees to borrow $375. Having to opt for non-traditional means of financial support, they ironically have to pay more than others when they borrow money, even though their financial margin is lower. By paying attention to just a handful of parameters, banks exclude millions of low-income and middle-class customers from improving their financial health, and the cycle continues.
Standardized products also make it harder for consumers to improve their financial health. Financial institutions offer a range of standard products and loans and use basic data analysis to set interest rates or deposit payments. And even retailers that offer more diversified credit options for consumers, such as Buy Now Pay Later (BNPL), are now experiencing significant problems with their credit programs because most users are in debt and unaware of their financial situation.
But what if the solution could lie in collecting financial data and analyzing it in a more meaningful way?
How consumer data can help improve financial well-being
To overcome the precarious financial situation of modern Americans, banks must stop looking at past credit, years of financial history, or debt-to-credit ratios to fight skewed credit ratings and interest rates. Behavioral data, such as spending habits and economic patterns, will provide a more accurate picture of people’s ability to repay loans or use credit cards responsibly. Low income does not necessarily represent a consumer’s ability to pay bills on time; requires deeper insights to adjust a fair credit score.
Artificial intelligence (AI) data analytics can categorize customer profiles based on their behavior and financial capabilities. By continually updating these customer profiles, the algorithm will understand patterns and deviations and provide recommendations to consumers and banks. Let’s say a customer’s account shows diaper purchases and high credit card spending; you may have a new member in the family. To support them, your bank may offer a higher credit card limit or extend the payment period. Personalized products conquer customers.
But even the smartest analysis couldn’t paint a complete picture of a consumer’s financial needs and health; after all, one’s personal preferences don’t necessarily show up in transactional data. Technologies like conversational chatbots have their finger on the pulse and provide deeper insights into financial fitness. Advanced conversational AI can communicate with customers and ask questions like, “Tomorrow, you will receive $2,000. You can spend it on a language course, a new TV, or a new pair of prescription glasses. What do you choose?
Why customer-centric thinking is the only solution
In the financial world, customer loyalty, customer acquisition, and customer satisfaction are not just related to quick and easy transactions, but to the experience of optimizing one’s financial situation. Banks with a customer-centric business model will create strong long-term value by building customer trust and engagement. The science is simple: a bank that reminds people of their debts every day leaves them with a guilty conscience and negative feelings. A bank that actively helps find the best financial tool for economic challenges and is empathetic to individual obstacles is unlikely a customer will switch to a competitor.
Today’s challenges require modern technologies and openness to disruptive thinking. Financial institutions that move beyond outdated methods of data collection and analysis and make their business model customer-centric will attract a much larger audience and improve the financial situation of their customers. By doing so, banks will also improve their bottom lines and improving financial health will become a win-win situation.
This article was submitted by an outside contributor and may not represent the views and opinions of Benzinga.
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