the key to banking’s past – and its future

One of the most interesting aspects of the digital banking revolution is that in some ways it is actually taking banking back to its origins.

The concept that links the original bancos in 13th-century Italian piazzas to the cutting-edge developments in today’s Fintech hubs is hyper-personalisation. Using permissioned real-time data to generate insights that are customer-specific, banks can offer
services highly tailored to customers’ needs. 

The rise and fall of hyper-personalisation, 13th-century style

The idea is not new. The original banks were a very good example of hyper-personalization in the absence of technology. They had deep customer understanding because many of them served a segment of one: for instance, the Medici family, or the Republic of
Genoa. 

They offered unique, personalised financial arrangements and terms. Moreover, they focussed not on selling products but on helping a client achieve a certain unique outcome.

This personalisation was gradually lost, from the Industrial Revolution onwards. As the Industrial Bank arose to meet increased demand, banking became standardized. That meant offering a limited range of standard products to a mass market. Only the wealthiest
continued to receive tailored services.

In the late 20th century, what I call the IT Bank essentially offered the same products as the Industrial Bank, but introduced computers and IT to realise internal efficiencies and increase profit margins. Changes were driven from the inside, arguably with
little real benefit to customers. 

In fact, some of the consequences of the IT Bank could be said to have made things worse for customers: centralisation and reduced local presence; in-branch staff with more skills in sales than banking; and the implementation of centralised and rigid ‘computer
says no’ style rules. The IT Bank focussed on efficiencies in the bank and its tech stack; it seemed to forget the customer. 

Back to the future: the digital bank and new possibilities in personalisation 

Excitingly, the digital revolution is today enabling hyper-personalisation again, and indeed bringing it to the top of the banking agenda. However, this time personalisation will be powered by technology, and delivered at huge scale. 

Using digital technologies, a single bank will be able to serve many thousands of individual customers, while still treating each as a segment of one. Banking is coming full circle, but this time far more customers will benefit.  

Today’s personalisation imperative 

Hyper-personalisation is a key way in which banks can differentiate themselves and thrive in testing financial conditions. As the impact of the 2020-21 pandemic continues to be felt, and with interest rates at record lows, banks can’t just rely on traditional
interest-rate-bearing products. Indeed Deloitte, in its November 2020 report The future of retail banking, goes as
far as saying that for banks hyper-personalisation is now an “imperative”.

The urgency Deloitte expresses stems from several factors. Firstly, customers see this kind of personalised offering everywhere around them – from Netflix recommending programmes to Starbucks creating bespoke offers for every customer with a loyalty card
– and they want the same in financial services. Banking is slow here: in 2018, financial industry strategist and influencer
Jim  Marous concluded 94% were unable to deliver on the potential hyper-personalisation offers and it is hard to see how that will have dramatically changed.

Second, there is a clear business case for meeting that demand: Deloitte’s analysis suggests that, “in terms of revenue, the personalisation maturity curve evidences that a firm’s revenue tends to increase after a certain level of hyper-personalisation adoption”. 

Thirdly, it is important from a regulatory point of view: governments and regulators now expect that banks play a role in meeting those of society’s financial needs that…