Banks and credit unions of all sizes face the challenge of finding ways to reconnect with customers, sell more products and services, and remain vital to their communities. This is especially true as online and mobile banking become the norm.
The Netflix recommendation model highlights machine learning in action and offers a best-practices approach to help address the challenge.
Netflix, without a doubt, is a major success in tailoring entertainment in line with customers' tastes. Curating a dizzying array of available choices into a custom set of offerings for its viewers, the Netflix model could be utilized by financial institutions (FIs) to truly understand its customers' needs and to predict what products a customer is most likely to adopt.
Collaborative filtering at work for FIs
Q2, in an extensive research effort, sought to identify those customers most likely to benefit from and be interested in a banking product based on an overall analysis of the products customers hold across a base. After spending significant time gathering and studying online and mobile data, we applied collaborative filtering-like Netflix uses-to make predictions about end user preferences using the collected information across the set of users.
In the case of Netflix, there is a set of data that characterizes customers' preferences such as movies viewed or products owned. Netflix then identifies the best choices for each customer based on the choices made by similar customers. In Q2's experimental exercise:
- We identified customers who would be the most likely to prefer a new product or service-in our exercise it was an auto loan.
- Then, we measured whether the customers in the selected group opened new auto loans.
- We found that identified users from our collaborative filtering model were three times as likely to open the new product as a user from a larger, more general group, indicating the algorithm for selection has strong predictive power.
The way Q2 approached machine learning and predictive behavior is discussed in the white paper "The Data Dilemma: Unlocking Customer Insights with Machine Learning." Written by Q2 CTO Adam (Anderson) Blue, the white paper takes a deeper dive into the important lessons gained in tackling machine learning and behavioral modeling, with a special section on collaborative filtering.
Q2 SMART: Driving Insights for Banks and Credit Unions
Much of what we have discovered in our data research has become the foundation of Q2 SMART that delivers the insights banks and credit unions need to grow their products per household. Non-IT staff can use Q2 SMART to tailor specific marketing messages and offers to the right account holders at the right time to drive product and services adoption and, more importantly, build relationships in the digital banking age.
The use of mobile-first technology has grown significantly in just a few years. Smartphones, without question, are now a dominant force in our daily lives. Nearly 60 percent of Americans use their smartphone at least once every hour1, managing just about every aspect of their lives, including their banking and other financial needs.
In what seems to have been a blink of an eye, the consumer banking landscape has changed. The numbers speak for themselves:
- In 2015, mobile became the main channel for account holder interaction2.
- In 2016, 80 percent of consumers said the mobile experience is one of the most important factors in choosing their bank or credit union3.
Mobile banking growth has carried over to the business sector, too:
- Some 52 percent of small businesses now choose to interact with their financial institution via the mobile channel2.
- Similarly, Q2 clients' business account holders have accelerated their adoption of mobile banking.
Millennials add to the mobile-first mix
Millennials receive a lot of attention when it comes to the future of digital financial services. The attention is warranted, given there are over 75 million4 of them. Even more encouraging to FIs, the Federal Reserve has found that upwards of 70 percent of millennials now use mobile banking5. Many millennials are entrepreneurial as well, presenting another avenue of growth. Around 67 percent say they want to start their own businesses, based on a Bentley University study6.
Fair, Isaac and Company (FICO) points out that millennials bank at large national banks more than any other generational group7. Why? Because they think only big banks have a digital strategy and that they are leading the market with the implementation of their strategy. Many millennials, at the same time, have expressed an attraction to smaller and mid-size banks and credit unions, and they likely would consider switching if their digital banking needs are met.
What's expected from banks and credit unions today?
Make no mistake: The way to reach millennials and just about anyone using smartphones and other mobile-first technology is through innovation that aligns with their digital lives-seamless, easy to use, and as close to customized as possible.
Consumers or businesses increasingly want to bank anytime, anywhere and on any device. It's all about banks and credit unions adapting to their schedules, 24x7. Mobile-first banking meets their needs. And while transactional needs are the primary reason mobile banking is used, account holders are open to other features beyond the purely transaction.
Increasingly, mobile users expect an evolving banking experience. One with:
- Easy online account opening
- Personal finance tools to manage their money and to plan for the future
- Payment to payment options for sending funds to friends and family while on the go
- Alerts (including text) that inform them about their account status
- More offers, tailored just to them
- An even more engaging and intuitive user experience
They also want to know they have best-in-class security working for them behind the scenes.
Winning in the mobile-first world takes strategy
Besides rapidly changing consumer expectations and demographics, intense competition is creating an entirely new financial services landscape. These factors have contributed to:
- FIs facing consistent, year over year declines of in-branch visits
- Staff reductions and diminishing service
Regardless of these concerns, banks and credit unions that adopt a thorough mobile-first strategy can survive — and they should expect to thrive.
Are you facing these challenges? Do you want to attract mobile-first prospects? Grow your reach with Q2's practical guide to mobile first banking and begin laying the groundwork for success.
1 Pew Research Center, Technology Device Ownership: 2015
2 Raddon Research Insights, CUNA.org, July 2016
3 Wall Street Journal 2016 Survey
4 Pew Research Center, April 2016
5 The Federal Reserve, Consumers and Mobile Financial Services, 2016
6 Bentley University, The Millennial Does to Work, 2014
7 FICO, Forging Lasting Banking Relationships with Millennials, 2015