The Power of Personalised Banking in a Digital Age: Driven by Entrepreneurship and Innovation

In today's rapidly evolving financial landscape, customer relationships are becoming increasingly transactional as traditional banks face challenges from digital challengers gaining ground. With margin pressures rising and new players gaining ground (they are the primary or secondary bank for one-third of consumers globally), banks are finding that offering competitive digital services alone is often not enough. While significant investment has been poured into digital transformation – over $2.8 trillion globally since 2011 – to enhance efficiency and convenience, this has sometimes inadvertently weakened customer relationships, making them feel impersonal and automated. This shift lowers the barrier to switching banks. In this environment, the ability to offer personalised experiences has become a critical differentiator and a powerful tool for banks seeking to accelerate commercialisation and remain competitive.

At the heart of this trend is hyper-personalisation, which goes significantly beyond traditional personalisation efforts. While traditional approaches might segment customers into broad groups, hyper-personalisation treats each customer as a unique individual. It leverages advanced technologies such as Artificial Intelligence (AI), Machine Learning (ML), big data analytics, and behavioural insights to deliver highly customised and relevant financial products, services, and experiences. The goal is to anticipate customer needs and preferences based on real-time data and predictive analytics. Hyper-personalisation is fast becoming a core component of the financial services industry.

Several factors are driving the rise of hyper-personalisation in banking. Customer expectations have soared, with consumers now seeking tailored services that mirror experiences they have in other aspects of their digital lives. In fact, a significant majority (72%) of customers say personalisation influences their choice of bank. Rapid technological innovation, particularly in AI and open banking, provides banks with the tools and data needed to implement sophisticated personalisation strategies. The competitive landscape, marked by the emergence of agile fintech companies and digital-only banks, necessitates that traditional institutions adapt and innovate to avoid irrelevance. Personalisation offers a way for banks to establish a clear brand distinctiveness and stand out in a crowded market. It also holds potential for financial inclusion, allowing more people access to benefits and offers tailored to their specific circumstances.

This need for innovation and adaptation in a competitive and changing market highlights the growing importance of entrepreneurship in banking. Entrepreneurial activity can stimulate economic performance of firms as well as provide competitive advantage. Firms can behave in an entrepreneurial manner, and this ability is a reflection of top management's intentional and effective management practices. Corporate entrepreneurship (CE), which involves firms behaving in an entrepreneurial manner, is becoming increasingly important for banks to survive and succeed in dynamic, uncertain markets. It is defined as a multi-dimensional phenomenon incorporating individual, organisational, and environmental elements. CE encompasses firm-level processes, practices, and decision-making styles reflecting entrepreneurial behaviour, specifically innovativeness, risk-taking, and proactiveness.

Traditional banks are grappling with adapting to a new age of banking that demands agility and innovation. The digital transformation enables firms to innovate the industry’s fundamental business model along the customer journey. To differentiate themselves beyond efficiency and convenience, banks need to build advocacy, turning customers into advocates. This requires cultivating strong connections and demonstrating continuity by listening and meeting customers where they are. Banks need to make customers feel seen. This requires moving beyond one-size-fits-all solutions and designing experiences tailored to each customer's unique financial situation and journey. This is where an entrepreneurial approach, focused on identifying and exploiting opportunities, becomes crucial.

The power of personalised banking is evident in the benefits it delivers to both customers and banks. For customers, it translates into an enhanced experience that feels seamless, intuitive, and relevant. Examples include custom-made product recommendations based on spending patterns, predictions of future financial needs, timely promotional offers, personalised guidance and advice, and automated money management. Customers appreciate receiving personalised feedback and communication that matches their needs and preferences. Hyper-personalisation can make banking interactions feel more like an "olden days" conversation with a branch manager who knows them well. The ability to leverage personalised technology can also improve the speed and efficiency of services.

For banks, the power of personalisation, enabled by entrepreneurial thinking and innovation, lies in its ability to build stronger relationships and drive business growth. By offering relevant and valuable experiences, banks can deepen customer engagement, foster loyalty, and enhance retention rates. Cultivating customer advocates – those who would recommend their bank – can lead to faster growth, higher profitability, and a greater share of wallet. Banks with the highest advocacy scores have grown their revenues 1.7 times faster than those with the lowest scores. Trust is fundamental in banking, and personalised services, when used responsibly, can positively influence client trust. Research indicates a strong positive correlation between perceptions of hyper-personalisation and trust, and that trust, in turn, predicts brand loyalty. Personalisation can also lead to increased customer engagement, higher product uptake, cross-selling opportunities, reduced churn, and risk mitigation through analysis of customer behaviour. It is a key factor in gaining a competitive advantage.

The rise of fintech companies and challenger banks is transforming the industry by providing more innovative and efficient customer experiences. Traditional banks must adapt and innovate to remain competitive. This often involves collaborations with fintechs and other third-party providers, which open the door to financial innovation and increased consumer choices. Startups from the technology sector are successfully integrating themselves into the financial service industry using an ecosystem's logic. These partnerships, enabled by open banking, provide banks with richer data sources to implement sophisticated personalisation strategies.

Implementing hyper-personalisation driven by entrepreneurial innovation is not without its challenges. Banks must navigate concerns around data privacy and the ethical and responsible use of AI. There is a fine line between being helpful and making customers feel surveilled. Banks must ensure that personalised services remain private and confidential. Building trust in new technologies like AI interfaces is crucial, especially as customers express some level of distrust towards automated systems like chatbots. Some customers also worry that hyper-personalisation might cause them to miss out on other relevant products or services. Banks must responsibly and ethically manage this capability.

Successfully implementing hyper-personalisation requires banks to build a unified view of the customer by integrating data from all touchpoints. It also necessitates significant investment in the necessary technology stacks and a commitment to continuously optimising the personalisation engine based on key metrics. Open banking initiatives are facilitating access to customer data, providing banks with richer information sources.

The power of personalised banking, especially through hyper-personalisation, is undeniable in the current digital era. It is becoming a vital component of a successful banking strategy, allowing institutions to move beyond transactional relationships to create deeper connections with customers. The competitive landscape and evolving customer expectations necessitate an entrepreneurial approach within banks, fostering a culture of innovation. By leveraging data, AI, and a proactive, risk-taking mindset to deliver tailored experiences, banks can enhance customer satisfaction, build trust, foster loyalty, and ultimately drive sustainable growth and maintain a competitive edge in a rapidly transforming market. Banks that successfully blend digital capabilities with a focus on personalised relationships, driven by entrepreneurial innovation, will be the ones that thrive.