By Nirvikar Singh and Simon Yencken*
In June 2019, the Bank of England released a 147-page report, The Future of Finance, which noted that “Technology is changing how we work, spend and live” (p. 6), and went on note the importance of finance in helping “households and businesses adjust to and take advantage of the new economy, if firms and policymakers rise to the challenge” (p. 7). This virtuous circle is potentially closed by technology: “Advanced analytics and the emergence of artificial intelligence could transform how customers experience finance and the agility, efficiency and resilience of financial firms.”
This is the vision. The reality is a bit more challenging. At their core, financial services can all be digitized, but their complexity and variety mean that human interaction can be important, for providing information and guidance where judgement is needed: not for routine bill-paying, perhaps, but very likely for designing and managing a retirement savings strategy.
The COVID-19 pandemic, by restricting in-person interactions, exposed some of the weaknesses of financial services firms’ digital strategies, especially in the realm of main street banking. A report from McKinsey (Bensley, et al., 2020) captured the situation well: “Many banks struggle to increase digital adoption among their customers” (p. 2). Why? The struggle is on both sides: “In normal times, many customers struggle with the transition to digital” (p. 3).
Some of the challenge is simply because of the complexity of many aspects of financial decision making, along with the associated anxieties it can generate. But some of the problem is more basic. A survey (Entersekt-PYMNTS, 2020) of 5000+ US consumers “found that 42.6 percent say they do not use the [mobile banking] apps because they do not like their apps’ user experiences.” Indeed, the McKinsey report quickly homes in on the key problem and broad solution (pp. 2-3): “customers go through a learning curve as they adopt digital tools, and most banks under-support their customers in the adoption journey. In the current environment, banks should redouble their efforts to smooth customers’ transition to digital.”
This is a tiny piece of the universe of “fintech,” to which the Bank of England alludes. Enormous amounts are rightly being spent on building and connecting the digital infrastructure that will make finance more efficient and helpful to households and businesses. Analysts are even speaking of new ecosystems for digital finance, as hinted at by developments in places such as China. It is easy to miss the importance of making customers’ digital journeys less difficult and more useful to them. A similar imbalance has shackled online retailers – they have been spending large sums on attracting visitors to their websites, without enough attention and resources devoted to looking after them when they get there (Singh and Yencken, 2020). And this “looking after” matters even more for finance than for ordinary shopping.
The answer lies in a sophisticated analysis of behavioral data – browsing characteristics such as total time on site, speed, page views, and exit intent, in addition to click patterns; interest in specific products and characteristics; visit outcomes; records of previous visits where possible; and so on – and what that data tells us about user intentions. The technology needed falls under “artificial intelligence” and its variants but, as always, the precise implementation matters. The solution needs to be omnivorous, adaptable, light-touch, and seamless – what we call a “behavioral data hub” – which responds automatically and effectively to real-time digital behavior and smoothes the customer’s online journey, whether it is for making an appointment, gathering information, completing a transaction, reallocating assets, or some combination of tasks.
Effective use of actionable behavioral data is like a perceptive store assistant, bank employee or financial advisor, who “reads” the customer or client, and responds appropriately. All the other aspects of digital finance are also important, but paying attention to this “digital last mile” is what can really put the “service” in “financial services.”
Bank of England (2019), Future of Finance. Review on the Outlook for the UK Financial System: What It Means for The Bank of England, Chaired by Huw van Steenis, June, London.
Bensley, Eleanor, Shital Chheda, Robert Schiff, Daniel Stephens, and Nicole Zhou (2020), Remaking banking customer experience in response to coronavirus, McKinsey & Company, Banking & Securities Practice, April.
Entersekt-PYMNTS (2020), Mobile Banking App Report: Tapping Authentication To Boost User Engagement, November, available at https://www.pymnts.com/authentication/2020/new-data-43m-consumers-are-holding-out-on-mobile-banking-apps-how-banks-can-change-their-minds/.
Singh, Nirvikar and Simon Yencken (2020), Trends in Digital Marketing: The Digital Last Mile, working paper, January, under journal submission.
* Singh: Distinguished Professor of Economics, University of California, Santa Cruz; Yencken: CEO, Fanplayr, Palo Alto, CA.