Improving Financial Health: A Win-Win For Both Banks And Their Clients

By Uday Akkaraju, CEO of BOND.AI

Today, 66% of US Americans struggle with their financial health, and 14% are considered outright vulnerable – in other words, the majority of people living in the US cannot plan their lives with financial freedom.

At the same time, financial institutions collect their customers' transaction data, give loans, and set interest rates – holding the trump cards for 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 in return, generate higher revenue.

The challenges to financial health

The most pressing issues for populations facing financial struggles 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 borrowing money, despite their financial leeway being smaller. Paying attention to only 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 difficult for consumers to improve their financial health. Financial institutions offer a range of standard products and loans and use basic data analytics 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 wellness

To overcome the precarious financial situation of modern Americans, banks must stop looking at past credits, years of financial history, or debt-to-credit ratios to fight 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. A low income doesn't necessarily represent a consumer's ability to pay bills on time – it requires deeper insights to adjust a fair credit rating. 

Artificial Intelligence (AI) data analytics can categorize customer profiles based on their behavior and financial capabilities. By continuously updating these customer profiles, the algorithm will understand patterns and deviances and give recommendations to consumers as well as banks. Let's say a customer's account shows diaper purchases and high credit card spending – 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 win customers over.

But even the most intelligent analytics 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 aptitude. Advanced conversational AI can communicate with customers and ask questions like: “Tomorrow, you receive $2000. 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 solid long-term value by building customer engagement and trust. 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 hurdles is one a customer is unlikely to trade for a competitor. 

Today’s challenges require modern technologies and openness to disruptive thinking. The financial institutions that overcome 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. In doing so, banks will also improve their bottom line – and improved financial health will become a win-win situation for everyone.