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• Speaker #0

  Welcome to FinTrends, the podcast series where we explore the hot trends and news in the financial sector with experts. In today's episode, we are diving into data-driven personalization. And to help us explore this topic, I am joined by Andrew Steadman, Chief Product Officer at SBS. But before we get into it, I'd like you to introduce yourself, maybe not in the same way that we did for the... previous podcasts but maybe more through the lens of why are you particularly interested in the topic of personalization in the banking sector yeah so thanks very much for having me back obviously the first one didn't block my copy book so i think for

• Speaker #1

  me personalization is something i mean the clues in the name as a customer of a bank i experience the effect of not having it and I think there's a huge opportunity for banks to leverage the data they have, understand their customers better, and present, you know, a much better level of service. You know, just my own experiences inform that. And I think that's important. I'm like anybody else, I've been banking for a long time now. And you have different experiences with different institutions. But there's always examples when you think, if they really understood me, they wouldn't have wasted my time. For me, a great example, I used to live in the US, and Bank of America always used to offer me car loans. But I don't have a car. I rode a motorcycle. And if they looked at my transactions at petrol stations, they'd have probably realized that because of the amount of fuel I was putting in my vehicle.

• Speaker #0

  Why do you think personalization has become such a key expectation for today's banking customers? Well, I think what we see in other industries is data being used to personalize service to a level that is actually impacting the customers. The experience is good. It feels like you're understood. And I think financial services needs to catch up and use the data that's available.

• Speaker #1

  I think we're in a fairly unique position within financial institutions about the sheer amount of data we have. We have all your transactional data. Legally we need to capture a lot of demographic data about you to ensure compliance with things like AML regulations. But really if I can understand that data and what it's telling me from a financial institution's point of view, I can actually offer products and services to that customer that they value.

• Speaker #0

  which will support their aims, their goals, their ambitions in life, and not just be a transactional relationship. So how do you explain the pain points that prevent banks from having catch-up?

• Speaker #1

  I think one of the biggest challenges for banks is where their data lives and how they can get their hands on it. Banking systems are complex. Data resides in many places. And it's often very difficult to get hold of that data. And the big challenge, I think, moving forward is bringing that data together and being able to use it at the point of need. And of course, as customers, we don't typically tell you when we're going to log on to our online banking app. We just do. And so I think the historic approaches of putting it at a data warehouse, crunching the information overnight and sharing it the following day,

• Speaker #0

  no longer apply. No longer apply. I think data lake houses and in the future, data fabrics are going to be essential in order for a bank or financial institution to bring that data together, but then use it in context when the customer arrives at a channel. Can you share an example where data-driven personalization led to stronger customer loyalty or growth? Yeah, I think a good example is in... activity around collections. So if you think about where a customer has gone into arrears and there's a problem with the relationship,

• Speaker #1

  a traditional approach for a bank was to ring up and say, give me money, give me money, give me money. And the idea of that collections approach was to recover the debt for the bank. I think where we see financial institutions using the information to tailor the conversation with the customer, understand their circumstances, and build a repayment plan that's much more aligned to them as an individual, you can actually come out of that. collections activity which is often a negative experience with a positive relationship because the customer trusts you to do the right thing you've helped them through their period of difficulty and you come out the other side stronger it's it's like any relationship you know if you take away from banking you know think about personal relationships they will often have friction at times and the way in which you get through those is being open being honest and communicating and understanding each other's positions. I think the more financial institutions can do that, the more trust they will build up with their customers. And even through rough periods, the relationship remains strong, even though there's a degree of tension. I think we see the relationship with the bank, you know, traditionally it's been just very transactional, but I think there's a role for the bank to play to help people through their financial journey. And the role of data becomes critically important in that. And so, yeah, for me, collections, I think there's many examples where you see collections. If it's done right,

• Speaker #0

  the relationship is stronger out the other side. Because most people who have financial difficulty today may well continue earning well into the future. And if you've got rid of them as a customer, you lose that future value. I like the comparison with the relationship. For me, I think it's, we use the word banking relationship,

• Speaker #1

  right?

• Speaker #0

  Yeah.

• Speaker #1

  And it's probably one of the longest relationships you have, right? How long do people stay with their bank? Yeah, true. It's often a very long time. I mean, I think of my parents, of course. In their era, it was all about I choose a bank and I remain with them for life. Probably the longest relationship you have type of thing. But in the modern world, I look at my daughter who's 25, she's looking for something more. She doesn't just choose a bank, she will move banks if she gets better service. And so I think technology is enabling her to move more easily, but also technology is available to let the banks do a better job if they can.

• Speaker #0

  So how can banks balance the need for data with the need to maintain customer trust? To me, the whole issue about trust, it's, again, think of personal relationships, right? It's about being open and honest, right? And communicating. And that builds trust over time. I don't necessarily need to agree with you to trust you.

• Speaker #1

  But trust is not something that people typically get immediately. You have to earn trust. I mean, that's the expression, right? And that is typically done through behavior. It's demonstrating that you're doing the right thing. You're looking out for the customer. You're using the information they give you responsibly and to the benefit of the customer. And I think all of those things over time build trust. And of course, once banks have trust, maintain it. It's not a point of time thing. Once I've got it, it doesn't mean to say I can't lose it. So I think they need to think very carefully about how they show behaviors to build trust and then maintain it.

• Speaker #0

  It's like onboarding with a bank. It's almost like courtship. You're getting to know each other, right? You decided to go out on a date. You're getting to know each other. And over time, you learn to trust the other person. Same thing. So what are the biggest risks? if banks fail to be transparent about how they use customer data?

• Speaker #1

  I think there's two things. I think you lose that trust very quickly, and also customers will not be willing to give you the data in the first place. So I think you have to demonstrate very clearly how you're using it, how you're using it in a responsible manner, what you're doing with it, and also showing the customer that there's value for them. in sharing that information with you. So if you use it properly and do the right thing. I think we see, you know, a lot of times where the response from a financial institution is, no, you can't have that. The immediate question is, well, why not? It's really important. That's the communication element of the relationship, that financial institutions explain why they've made a decision, right? Potentially, I've said no, because Peace. Based on what we know about you, we don't believe you can afford this loan and it will put you in financial jeopardy. We don't think that's right, therefore we're protecting you. I may not like the decision, but I trust that it's the right decision. And I think that's the element of where banks need to get to, rather than just saying, no, you've had your loan declined. Because that makes you feel a negative experience, whereas I think if they approach it properly and explain why it wasn't appropriate to give you the loan, you sit there and think, OK, they're looking after me, even though I don't like the fact... They've not given it to me. I understand. And I think that's going to be the key element moving forward. And particularly with AI, right? When we see AI being used more and more by financial institutions, one area where they're still hesitant is where it impacts the customer because they need the explainability.

• Speaker #0

  AI that operates in a black box is very difficult because I can't just say... The machine said no, I need to be able to explain why. So I think as we see the evolution of explainable AI, it'll be much more prevalent in the industry, particularly for customer interactions. Also, AI requires regulations and regulators, they play a big role in the banking activities. So how do regulations help or challenge banks in their personalization efforts?

• Speaker #1

  So I think they sometimes do help, actually. Most regulations, of course, are always seen by a financial institution as a headache, something that is a burden. But I think we have a good example from the UK, where the UK regulator implemented some consumer duty legislation. And effectively, that consumer duty legislation... required the banks to do their due diligence about individuals and provide a focus on ensuring that the customer could afford what they're buying it wasn't going to put them in financial difficulty they understood it was more them being a bit more proactive than they had been in the past the the banks obviously resisted it because it was new regulation it would have new cost but interesting there was a report published recently that showed As a result of that consumer duty legislation, customers are trusting their banks more because they've been more open, they're visible of what they're doing with the data, and therefore customers are saying, okay, yeah, I understand you more, I trust you more. And I think that openness and honesty is really what's critical to ensure that you can build a proper relationship that evolves over time. and again It's not a one-time thing. It's something you have to continually evolve during a relationship, pretty much like a marriage, right? And so I think the banks, whilst regulation is there for a host of reasons, to protect us, to protect the industry, to protect economies, the way in which banks apply it, are open about applying it, I think I don't see it as a hindrance at all, really. You know, if you think of GDPR as a good example. When you collect data, you have to be explaining what you're going to use it for. Well, if your bank says to you,

• Speaker #0

  you know, I'm going to make you financially healthier if you can supply me this information, it's why would I not do that? You know, if you're going to help me. And I think that's the thing. The perception is they're gathering it for their own benefit, not my benefit. And if they can turn that around, I'd share a lot more information. Okay. We were talking about artificial intelligence and I was wondering how can it be used for today personalization and how can banks ensure that AI driven recommendations are both effective and understandable for customers?

• Speaker #1

  Yeah so I think dealing with the last point the understandable piece is got to be explainable AI. That technology I think is going to be really key to be able to say Here's what we suggest, but here's why we suggest it. And I think that that becomes really important. In terms of how it can be applied, I think it can be applied in so many ways as a tool to guide me through my financial journey. There's loads of data available, all the information that a bank holds, all the information it can obtain through open banking. I mean, even arguably the information it could obtained from my social media right you know if you think about people who travel their post their holidays tells you something about the individual so i think Gathering all this data together is really important, but then applying it in the context and saying, OK, what are you trying to do? Well, I'm trying to figure this out. I think that's where AI becomes really important, to be able to look at all that data and interact with it at that point of need and be able to help the customer be guided into the financial strategy they want, if that's the right word. achieve the financial outcomes they're looking for.

• Speaker #0

  I'm curious to have your opinion on this one so at which stage of the customer journey whether onboarding, engagement, retention or loyalty do you see the greatest opportunity for impactful personalization? I think all stages like you know I mean it sounds like a bit of a cop-out but I think again you think about a relationship it. there's no one point in that relationship more important than another right it's all about being personalized all the way through and I think you know onboarding yes there's personalization in a particular context but

• Speaker #1

  equally 10 years later when you know somebody has their first child and they're thinking about how they're going to pay for schooling it's a different context but it's equally as personal. I think the trick is not necessarily specific points in a journey. It's about using the information that I constantly learn from the customer to guide those future conversations. We've all applied for an account with a bank we already bank with, and the first thing they do is ask you for your name and address on the form. And you think, well, they know my name and address. Why are they even asking? That's a simple element of data. If you think about all the behavioral information you've had from me over the years, you better understand me, right? I mean, if I think about my bank account, you will have seen me paying for nursery fees, you will have seen me paying school fees, you will have seen me sending money to my daughter while she's at university, and now you don't see me sending her any money at all because she's working on her own. And every now and then, she rings up and says, Dad, can you help me with something. There's a pattern there, and you can understand that pattern because it's a very common pattern. So if you look at your database of customers, you'll see that pattern over again. But it also would help you understand where I am in that journey. Using that knowledge, you can then support me, but why wouldn't you say, has your daughter just left university? Does she need some help? Why not establish that personal relationship with her as well as me? And so I think the opportunity is there for banks to constantly reinforce the strength of the relationship, the trust in the relationship by applying personalization when it's appropriate on that journey through life.

• Speaker #0

  Where do you think the line is between helpful personalization and being too intrusive? I think it can be a fine line and a difficult one. I think when it becomes obtrusive is where it starts leaning more heavily towards the bank's agenda rather than my agenda.

• Speaker #1

  If I see you trying to help me then I don't think it becomes intrusive. I think it's okay that's really interesting but not today. But if I see you trying to push things that are your agenda that don't really quite fit me. then I think that's where people feel it's intrusive. And I think you have to be careful there, right? You know, I think, again, I think back to my days at Bank of America. I mean, it's a good few years ago now. But we moved to the US. Of course, we had no credit history. And I didn't have a credit card because, obviously, I couldn't get one. My salary was going into my Bank of America bank account. And they would... periodically send me credit card applications saying you're pre-approved for a credit card and so I'd say okay I'll have one and they go sorry can't approve it clearly it was their agenda right they wanted me to have a credit card but yes it would have helped me enormously but then they'd take it away and say actually we can't approve it and it was only after we'd been there six months and they said oh yes you can have one But that type of thing, it was pushing their agenda. They knew how long I'd been in the country, but they didn't use that information. They just went down the route with their agenda. And I guess that's why, you know, that was, what, 20 years ago? I'm recounting that story here because it stuck with me.

• Speaker #0

  So what would be an advice that you would give them if they were starting their journey towards responsible data-driven personalization? When you look at it, people think, oh my God, it's a big thing. So I think the first thing is get your data in order. Because without the data being accessible and usable,

• Speaker #1

  you're really going to struggle. And then it's a question of starting small. Focus on one area where you can help. Use that to drive that personalization and test it, see how it goes, and grow from there. I think if you try and do too much too soon and bombard the customer and jump into it, that can feel a bit intrusive. Whereas I think if you step in and say, oh, you know. this seems to be happening would you like some help oh if you continue in this path you'll probably be overdrawn at the end of the month do you want some help with that oh i didn't realize thanks very much for letting me know i'll need to just curtail my spending for the next week or so so it's that that's how you gain trust right just small helping guiding and it it builds trust once you've built trust the more trust you have the more you can step in and say, we think you should do this, or we would like to do this for you, or you can step in more fully. But I think if you haven't got your data in order, it's really difficult to do any of this. And also, I think people are often jumping into AI, because it's the answer to everything. I'm not sure it's the answer to everything, right? It potentially can solve a lot of things, but it's not always the right tool. And I think that's the other thing. banks need to be careful of. I was talking to one of our clients this week at Summit and they're beginning to see a challenge whereby they have so many AI agents they're struggling to manage them all now and they don't know which ones actually are valuable to the business as opposed to which ones are just being used because you can use an AI agent to do it but actually it's not as it's driving more cost to the business. So I think You just need to be careful and start with the data,

• Speaker #0

  start with a focused use case, and start growing from there. Yeah. Thank you, Andrew, for sharing your insights and being with us. You're very welcome. Thanks for inviting me back. Thank you.