Imagine a world where banks are not just a place you put your money, but they actually understand your needs. They speak in a way that makes sense and help you navigate your finances. If you ask any fintech enthusiast with over 20 bank accounts and a plethora of fintech platforms, they constantly explore and seek the most from their banking apps. In the 21st century, it is considered an absolute standard for banks to have voice assistants, expense categorization, the ability to send money via phone numbers, and enrich payment data with GPS location, logos, and other enhancements.
Example of contextual banking
Meet Anna, who is thinking about buying her first home. During a bike ride through a neighborhood she likes, she turns to her phone mounted on the bike and asks, "Hey bank, can I afford a house in this area?" The bank's app immediately responds: "Yes, the houses in this location align with your pre-approved mortgage and financial reserves." It sends her a detailed report on the neighborhood's suitability right after, based on factors like schools, crime rates, accessibility, taxes, and weather.
Contextual banking is when banks leverage modern technology to enhance the customer experience. They ensure a seamless integration with the customer's lifestyle and preferences while safeguarding their information. Customers save time and feel happy, because bank finally knows and understands their needs. Simultaneously, these channels serve as opportunities for upselling and increasing customer revenue for the bank.
It's crucial for banks to tailor their services to each individual. According to Forrester, if a bank fails to do so, up to 40% of customers may consider switching to another bank. Even small retail banks could witness significant revenue increases with a customer-centric approach.
According to Boston Consulting Group, well-executed personalization on a large scale can lead to a 10% annual revenue increase.
So, what is contextual banking?
Next-gen banking utilizes information from customers' current and past activities to understand who they are and what they want. This helps the bank respond to their needs regardless of how the customer contacts them. This is evident in the preferences of Gen Z, a generation born into a digital age, who prioritize eco-friendly solutions. A bank can show such a customer their carbon footprint while shopping and offer discounts at selected sustainable stores.
Some key components of contextual banking include:
- Preferred channel
- Purchase history
- Previous behavior
- Device-based data
- Web search history (when and where)
With the growing intelligence of devices, our interactions with them are evolving too. Devices don't just react to our actions; they can initiate conversations and actions when they sense that their users are active and receptive. This constant availability allows banks to be on the side of their customers, prompting them to specific activities, sending reminders, and keeping them informed about everything in their financial world.
How to implement a contextual banking strategy
In today's world, processes must be streamlined and adapted to the new generation of users. For instance, consider a customer named Peter who wants to buy a new TV. The bank would know this and inform Peter about a special discount at a shopping center. Pavel can then purchase the TV he wants with a discount, get additional insurance, or even pay for it over several months period.
Just like in sports, no bank can be the best at everything. In banking, it's crucial to collaborate with the right partners who can help offer customers the best services through a mobile app. These partners could be fintech companies or established firms with good experiences and products.
Contextual banking is on the way to be the next major trend in the coming years, and its emergence is already noticeable. I see it as the only way for banks to remain relevant and not lose touch with their customers amid the surge of major tech giants entering the financial services market. If banks fail to leverage contextual banking for their advancement, they may end up being mere infrastructure components, losing touch with customers and becoming intermediaries, much like Citibank with Google Pay or Goldman Sachs with Apple Card. Over the next 2 to 3 years, the experience will become a key factor.