The genie is out: Hyper-personalization of financial services products is in

Financial products are often built for the average user—not for a specific individual. This often leads to products that are adequate but fail to delight customers. Fintech companies are changing the approach by working to solve specific issues faced by niche communities. The hyper-personalization of services is another way the fintech movement could affect how traditional financial services respond to changing consumer preferences. 

One example of hyper-personalization comes from fintechs serving the creator economy, a space that comprises content creators, influencers and social media personalities, among others. It is estimated to be a $100 billion industry, according to marketing platform Influencers Club. Creators require financial products that offer flexibility, convenience and value, just like other customers. But they also need to account for unpredictable income streams, sponsorship deals, merchandise sales, affiliate marketing, and direct payments from their audience. Nerve, a prominent fintech serving this niche, offers an FDIC-insured debit and savings account for creators that features no monthly account fees or minimum balance requirements. Nerve also offers an in-app invoicing and embedded card processing feature that allows creators to monetize their fan base.

Apps that promote financial literacy for kids in an engaging way offer another example of specialization. Greenlight is one example of multiple fintechs whose products incorporate “bite-sized” money lessons, chore allowance tracking, and basic saving and investing features.

For co-parents who are unmarried or divorced, having an easy way to track shared expenses, facilitate payments and streamline communications about shared expenses is incredibly valuable. Onward and CoParenter focus on such needs. CoParenter even offers unlimited on-demand mediation and sentiment analysis to help with co-parent communication.

The range of these examples indicates how fintech companies can address the needs of distinct users.

Why does this matter to the middle market?

Increasingly, consumers get personalized experiences in other aspects of their lives, such as e-commerce, social media and entertainment. As such, they are likely to expect a similar level of personalization from their financial services providers. The trends that drove fintech adoption—the rise of e-commerce, digital payments, and online and mobile banking—remain strong, and fintechs that hyperfocus on a particular niche and prioritize the user experience, community building, and providing financial products are winning in the market.

Evidence of the importance of hyper-personalization is also coming from the increased use of fintech apps and customers' willingness to share their data for a more personalized experience. According to Plaid’s Fintech Effect report, the proportion of millennials using digital apps and tools to manage finances in 2022 was 91%. Additionally, 8 out of 10 customers noted they are using some type of digital financial tool, and almost half (48%) of Americans use fintech to manage their finances daily.

To remain competitive, traditional financial services companies should consider how they can also build hyper-personalized customer journeys. Middle market financial services firms need to invest in knowing their customers and their pain points and upgrading their customer journey experiences.

Building hyper-personalized financial services products starts with deeply understanding the customer and thoughtfully engaging them throughout the product build-out. But this is only part of the equation. The other prerequisite is the technology needed to facilitate this process. Fintechs use artificial intelligence, machine learning and big data to hyper-personalize products for their customers, and other financial services organizations should consider getting more comfortable with doing the same.

Traditional financial companies could face a few challenges in pursuing a hyper-personalized product strategy. Legacy systems and processes could be outdated and unable to handle the large amount of data required to provide personalized experiences; siloed data can be scattered across different systems and departments, making it difficult to get a holistic picture of the customer and provide a personalized experience based on their needs and preferences. Frequently, cultural resistance to change is the biggest hindrance in pursuing a hyper-personalized product strategy.

However, traditional financial services companies can compete in the hyper-personalized financial services market by deepening their understanding of their customers, having a strong digital strategy and fostering a culture of innovation. Here are a few considerations for pursuing a hyper-personalization strategy:

• Make sure you know your customer. Hyper-personalization requires a human-centered strategy that leverages proprietary data, ethnographic research and customer data. It's important to merge qualitative information obtained from assessments, workshops, and observations with quantitative customer data sources, including traditional demographic information plus behavioral data (spending patterns, investment history, life events) from customer surveys, on-premises and online transactions, and social media. The synthesis of this research phase sets the foundation for a product design that meaningfully enhances the user’s experience and provides a level of engagement that translates to increased brand loyalty, reduced operating costs and better financial performance.
• Develop a strong digital strategy. Hyper-personalization requires access to real-time data at crucial points in the customer journey experience. Thus, traditional financial services companies must consider modernizing systems and processes to create efficiencies while investing in new technologies. When designing a hyper-personalized product experience, fluid collaboration among data engineers, the user experience design team, and software developers is critical. The integration of unique technologies (AI, machine learning, Internet of Things, augmented reality) with organizational data assets and processes is paramount to a successful delivery, which should be agile in nature and tested throughout the pilot and launch phases.
• Foster a culture of innovation. A successful hyper-personalization strategy requires that companies shift their focus from an internal product-led approach to an external customer-centric approach that responds to changing consumer needs and preferences. This requires employees to work in new ways, and traditional financial services companies need to consider how change management can help foster a culture of innovation.