By Uday Akkaraju, CEO of BOND.AI
Today, 66% of Americans are struggling with their financial health and 14% are considered to be at high risk – in other words, the majority of people living in the US do not have financial freedom to plan their lives.
At the same time, financial institutions collect their customers’ transaction data, grant loans and set interest rates – they hold the trump card for people’s financial health: their economic data.
Here you will learn why and how banks need to use customer data, tailor their offers to customers’ financial needs and in turn generate higher revenues.
The challenges to financial health
The most pressing issues for the population facing financial problems are payday loans and their high interest rates. On average, payday lenders charge $520 in fees to borrow $375. Ironically, because they have to opt for non-traditional forms of financial support, they have to pay more than others when they borrow money, even though their financial flexibility is narrower. Banks pay attention to just a handful of parameters, leaving millions of low-income and middle-class customers locked out of improving their financial health — and the cycle continues.
Standardized products also make it difficult 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 consumer credit options, such as B. Buy Now Pay Later (BNPL) are now having significant problems with their lending programs as most users are in debt and unaware of their financial situation.
But what if the solution could be to collect financial data and analyze it more meaningfully?
How consumer data can help improve financial wellbeing
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 combat biased 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 doesn’t necessarily represent a consumer’s ability to pay bills on time – it 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 anomalies and make recommendations to both consumers and banks. Let’s say a customer’s account shows diaper purchases and high credit card spend – they may have a new family member. To support them, their bank may offer a higher credit card limit or extend the repayment period. Personalized products convince.
But even the smartest analytics can’t paint a complete picture of a consumer’s financial needs and health – after all, personal preferences don’t necessarily show up in transactional data. Technologies like conversational chatbots are on the cutting edge and providing deeper insights into financial fitness. Advanced conversational AI can communicate with customers and ask questions like, “Tomorrow you’ll get $2000. You can spend it on a language course, a new TV or new glasses. What do you choose?”
Why customer-centric thinking is the only solution
In the world of finance, customer retention, customer acquisition and customer satisfaction are not only associated with quick and easy transactions, but also with the experience of optimizing one’s own financial situation. Banks with a customer-centric business model will create solid long-term value by building customer loyalty and trust. The science is simple: a bank that reminds people of their debt every day leaves them feeling guilty and negative. A bank that actively helps find the best financial instrument for business challenges and that empathizes with individual hurdles is unlikely to trade a customer for a competitor.
Today’s challenges require modern technologies and openness to disruptive thinking. The financial institutions that move beyond outdated data collection and analysis methods and make their business model customer-centric will attract a much larger audience and improve the economic status of their customers. As a result, banks also improve their bottom line – and improved financial health becomes a win-win for everyone.
This article was submitted by an outside contributor and may not represent the views and opinions of Benzinga.
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