Bob Legters, Contributor
Feb. 16, 2021
You may not realize it, but your bank probably knows more about you than you know about yourself.
It’s a side effect of our digital economy: just as a major online retailer can tell when you’ve had a baby or moved homes based on the purchases you make, banks understand you because of their 360-degree view of your financial activity. Someone applying for a car loan is in a different life chapter than someone starting a 529 college savings account. Someone refinancing a mortgage is in a different spot than the person applying for their first loan. Add countless transactions and engagements in between and the data builds a pretty clear snapshot of who you are.
Luckily for consumers, there’s a lot of regulation and protections in place, especially when it comes to financial data. Even still, banks must know how to utilize their client data without betraying trust. We’ve heard of helicopter parents who are overbearing on their children, but a helicopter bank is one that hovers over its customers pressuring them through overly targeted marketing.
So where is the balance?
A match made in a data cloud
Banks start collecting data on a customer as soon as that account, loan or mortgage is opened. Monitoring financial activity, such as how and where a bank-issued credit card is being used, adds data to a user’s profile over time. Banks who use the cloud to marry basic profile data about their consumers with informed data from financial activity can create broader profiles to design highly-targeted offers. When those offers hit a little too-close-to-home for consumers, it may feel like the bank is hovering overhead, pressuring them into decisions about where to buy coffee or fill up the gas tank.
On the other hand, banks who create profiles of people by aggregating data, such as by looking at lifestyle changes, often hit the right tone with consumers by delivering timely messages for life events. Car loans, home loans, home equity lines of credit, savings accounts for kids; all of these are great offers for clients at certain stages in their lives, while a credit card, debit card or overdraft protection are a better fit for a totally different life stage.
While the use of targeted data use may seem overbearing for some customers, it comes down to the fact that every piece of data comes with some assumptions. The more data you have, the more zeroed in those assumptions get. If you are a large grocery chain, you’re never going to get banking data, but you can make some pretty educated guesses about what your customers are up to based on the information you do have, which includes customer data about purchases and loyalty program membership.
The line is between influence and getting too involved
How do banks determine where the line is?
First, consider the audience. Not all customers are built the same. People signing up for a digital only bank offering might be more comfortable with a data-driven, digital world and thus, willing to engage in highly targeted offers. Conversely, customers with more traditional accounts might like their bank for the sense of privacy and security that it gives them and would be entirely offput by a marketing ‘nudge’ from their financial institution.
Banks have a choice on what type of relationship they want to have with their customers. They can decide to be a helicopter bank that constantly pressures clients into certain decisions—for example with highly-targeted offers or even something like too many mailers for credit card offers. Or, banks can choose another path, using their data to understand their clients better, to keep them informed and empower them to make their own decisions.
Consumers are okay with data targeting when it’s done right
This isn’t to say targeted offers are all bad. A recent study found that 88% of respondents thought it was important that their banks personalize products and services based on their needs and behaviors. Another study calculated that for every $100 billion of assets a bank has, it can increase revenues as much as $300 million by personalizing its customer interactions. Done right, both sides benefit.
Not a new idea but made better with technology
Adjacency has been used by marketers for decades to build and reward loyalty with customers. Today, it is standard operating procedure for most banks. Marketers figured out years ago what made sense and what was combinable, but they didn’t have the technology that’s available today. The more banks know about their customers and prospects they are able to build data profiles which are anonymous to protect the consumer. Adjacency lets banks and retailers do data-led marketing that drives sales and loyalty without the creepy factor.
At the end of the day, even if a deal or offer is relevant for a client, no one wants to feel pressure to act on that offer. A bank must balance the difference between keeping their clients informed versus being influenced. As soon as an offer is perceived as trying to influence an outcome is when that feels like pressure, and that’s when it’s very easy to step over the line. Your data and how engaged your bank is can be just like every relationship in your personal life: the longer you’re together, the better connected the two of you are. So next time you open a new account with a bank, you’ve just joined a new banking data family.
© 2022 Forbes Media LLC. All Rights Reserved
This Forbes article was legally licensed through AdvisorStream.