Bank customers to expect Netflix-level personalisation

According to Standard & Poor’s Future of Banking: Fintech Flags Turning Point in Australian Banking report, banking customers will expect more than just a home loan or savings account in the future; rather they will expect their providers to offer customised products based on their full financial profile, similar to the way Netflix and Spotify tailor their offerings.

“If today’s banks can rise to this challenge, they have an opportunity to offer value beyond a competitive price for a mortgage loan,” Nico DeLange, credit analyst at S&P, wrote in the report.

Acknowledging that the banking industry is poised for “substantial upheaval” on the back of fintech advancements, the S&P report notes that providing a high level of product personalisation will be easier as the open banking regime in Australia takes off. This is because the regime – a precursor to an economy-wide open data model – is expected to increase the availability of, and access to, more meaningful data on customers.

“We believe access to comprehensive financial data will allow banks to more accurately price for risk and create tailored product offerings. Broader applicability of open banking may also bring other industries and sectors into play and create opportunities for cross industry partnerships and investments,” Mr DeLange wrote.

“In this regard, we believe that open banking is more ambitious in Australia than the rest of [the] world, with the introduction not only in banking but also other sectors, including telecommunications and energy.”

The ratings agency said it expects neobanks to be one of the bigger beneficiaries of open banking as they are not anchored down by legacy systems or extensive branch networks.

“Their lack of existing infrastructure – they operate digitally, usually from an app – and generally younger target customer base allows them to focus on using data to develop innovative product offerings,” Mr DeLange wrote.

“While the major banks have more resources to invest in data analysis, they stand to lose the competitive advantage historically afforded by their proprietary customer databases and extensive branch networks. Their reliance on legacy banking systems may also be an impediment in making the necessary changes.”

While technology consultancy firm Capgemini and banking association Efma last year warned that customers could ditch banks for large tech players – such as Alibaba, Amazon, Apple, Google, Samsung and Tencent who have been moving into the financial services market by offering digital wallets  – in pursuit of a better experience, S&P believes the highly regulatory nature of the Australian banking industry “act as a deterrent for them to participate as direct competitors”.

However, the ratings agency does expect to see more partnerships and collaboration between banks and these large tech companies in the future.

The Capgemini-Efma research even considered the likelihood of Australian customers purchasing non-banking services from their banks.

“These once far-fetched ideas are now in experimentation. For example, the bank is one of the first places you let know you are travelling; we increasingly rely on our cards working overseas. So once consent is provided, why can’t they broker additional products and services based on your data?” Capgemini’s head of financial services in the ANZ region, Philip Gomm, said last year.

“We acknowledge this is early days, but we might not be that far off from this.”

He added at the time that banking executives need to be prepared to position their banks as “an owner of the future customer relationship, not a participant”.

[Related: AI could transform loan servicing: S&P]