Let’s start with the good news. The US economy is slowly recovering from the challenges posed by the COVID-19 pandemic. The bad news: About two-thirds of US Americans are still struggling with the financial difficulties caused by the economic downturn.

We have the good and the bad – now comes the ugly. For years, financial institutions have underestimated the connection between their customers' financial health and their business interests. Banks assumed that quick transactions, handing out loans, and providing customer support (and let’s not forget closing branches and the countless mergers) were sufficient for customer satisfaction and retention. But as a financial service provider, you don't just manage people’s money – you manage their entire financial lives as you have the key to their financial data. This data contains all the information customers need even to get the chance to improve their economic well-being. 

Customer data plus their well-being equals a significant business opportunity for banks. The equation is that simple – so let's dive into the details.

Your customers need your help

Picture this: 40% of customers of America’s largest financial institutions don’t realize the impact of their banks on their financial health – 80% of American consumers are interested in receiving advice or guidance from their primary financial institution. These numbers demonstrate a huge market gap between the demand and supply of financial health tools.

So, why are banks still hesitating to help their customers? Mainly because measuring financial health is technologically and conceptually complex, and overhauling old legacy systems is costly. 

Some forward-thinking fintech companies are already grasping the importance of providing customers with analytics of their financial behavior. Yet, the depth of this analysis is still often limited by incomplete data elements. For example, when payments are made in independent stores or manually transferred to bank accounts, the transfer’s purpose is often not recorded correctly. This can give a false indication of the consumer's actual behavior and makes it difficult for banks to spit out fitting recommendations.

Banks will only get deep insights when building analytic financial health technology in-house or deciding on a technology provider powered and supported by Artificial Intelligence (AI). AI-driven analysis can incorporate any information you currently have about your customers, including credit, debit, and bill-pay activity. And with customers’ consent and open banking tools, you might take a look at third-party service transactions as well to complete the picture.

Dig deeper and build true empathy

Let’s look at a well-known example to understand the actual depth of financial health. Customer A has solid cash flow and a low debt-to-income ratio, but she has never used a credit card or taken out a loan. Although she has no credit score, she would be considered relatively financially healthy. If this customer now wants to access a loan, she might be screened out according to traditional procedures because she simply lacks historical credit data. 

Here, AI can take a more detailed look at each customer. To build this knowledge system, banks will need to acquire sufficient data, considering parameters such as debit card transactions, assets, and third-party data and external data like capital market performances, inflation, and social media. By synthesizing these data elements into customer profiles, you understand each person. With the help of AI modules, you can help customers manage goals and financial assets.

Financial transactions can show consumers' past behavior and current economic challenges, but they don’t always tell the whole story. Customers have individual preferences, ambitions for their future, and they want to be in the driver’s seat when it comes to choosing a financial path.

An institution can gather customer insights by using conversational AI technology. If customers answer direct questions on behavior, choices, preferences, and challenges, banks can understand and align intangible perceptions, behaviors, interests, limitations, potential, and aspirations – and use this data to cultivate a whole new level of empathy.

Continuous feedback to drive satisfaction

The key to customer satisfaction is finding the best product match for each customer. If banks engage customers in an open dialogue on their financial needs and offer customized solutions, they will improve customer relationships and build trust. Banks can then support customers in budgeting, automated savings, and paying off debt by connecting financial health with their services.

Continuous engagement also allows the financial service provider to generate feedback on financial health products and services (such as a financial health report, investment recommendations, and product-fit). Banks could even consider tracking the products designed to directly impact financial health – asking whether their new savings product is helping customers increase their balance or not.

Financial wellness goes hand in hand with revenue

Banks will spend less time and effort on customer service support and marketing when personalizing financial product offerings to people's economic situations. In other industries, 98% of marketers already believe personalization advances customer relationships significantly. The banking world has been somewhat behind in figuring out how to increase its marketing ROI – and financial health is the key to opening that door.

And there’s one last argument about why poor financial health conflicts with revenue. Banks have for a long time been dependent on overdraft fees – the largest US banks made $11 billion in revenue due to people's financially vulnerable situation. This approach will be quickly overruled as it has failed to see how their revenue negatively impacts customers' financial health.

Overall, as most customers are looking for guidance from their bank, people will make their future decisions on opening an account or switching from their current provider to a competitor, not only based on seamless transactions and digital customer service. They will be searching for a trustworthy institution helping them improve their financial health.