HSBC Sees Hyper-personalization in Banks’ Future

How will banking change in the next 10 years? That was the subject of a new report from HSBC. It concluded that hyper-personalization will become the next battleground.

The report, Banking of the Future, Finance in the Digital Age, written by financial technology expert Professor Markos Zachariadis for HSBC, noted that digital banking is already the new normal. HSBC shared that 87% of its global retail transactions are already digital.

But with the continuing digitalization and consumer access to their personal data, customers will begin to take control of their own personal data through digital ID profiles. Zachariadis saw this shift as an opportunity for banks to become a “trust broker” by getting closer to their customers and becoming a platform for financial services.

“By leveraging technology to better organize and analyze the data, as well as using their trusted position to build a closer relationship with consumers, banks could expand their role at the center of a more platform-based financial services model,” said Zachariadis.

The key to becoming a trust broker is data. Mastering new data sources and AI can help banks to better understand their customers and help them to unlock financial opportunities. This is why the report felt that hyper-personalization will be the new battleground for banks.

“In the future customers will increasingly be able to expect a highly-personalized service determined by their individual requirements, instead of based around a set of savings, borrowing and investment products, each with their own sales and servicing characteristics,” said Andrew Eldon, head of Digital, Retail Banking and Wealth Management, Hong Kong.

However, the report warned that banks need to get a few steps right first before building the trust that is required for hyper-personalization.

First, banks need to standardize AI, especially on how information is collected and presented to customers. Cybersecurity will also need to become a Board priority.

“Even as the number of digital platforms and services expands, trust will still be at the heart of banking in the future. Customers will depend on trusted relationships more, and there is an opportunity for banks to become ‘trust brokers’ in accessing third party services, like utilities or retailers. But we will need to ensure a proper balance is struck between innovation and regulation. Given the headway already made in the journey to become digital, Asia has a critical leadership role to play,” said Andrew Connell, Global Head of Partnership Development and Innovation at HSBC.

Meanwhile, the expected boom in regtech will help to make compliance commoditized, while allaying consumer fears. In this regard, the report predicted that regulatory oversight will also expand, with non-banks falling within its scope. However, it did not see true borderless regulations feasible as regulators need to have both local and global outlooks.

“By mastering new data sources and analytical technologies, banks will be able to build up a deeper understanding of customers’ needs, but for a future of personalized banking to become a reality, banks and regulators will need to actively address risks to customer wellbeing – as well as protecting the financial system. The Hong Kong Monetary Authority’s recently announced 12 principles for the use of AI in banking practices to help give a solid foundation for building a new era in customer-centric banking,” said Eldon.

The recent announcements on cryptocurrencies, especially from China and Facebook, is getting consumers debating the role of distributed ledger technology (DLT).

Here, the report felt that the next 10 years will see more acceptance, especially for “platform-mediated” distribution of financial services. It also believed that asset-backed crypto-assets, such as stable-coins, or central bank digital currencies (CBDCs) might play a larger role. However, it downplayed the role of native cryptocurrencies “that lack any asset-backing and issuer.”