Contextual Banking: Why contextual services are the future of the financial industry?

The consumption of financial services has changed. If before it was necessary to go to a branch to access banking products, today this scenario is unthinkable given the facilities of the digital banking. It is clear that there has been significant progress, largely due to the entry of fintechs into the segment. However, the time has come for the market to take another step towards innovation: it is time to start looking at Contextual Banking, a model that is revolutionizing the way of offering services and financial products.

Based on Hyperpersonalization, the Contextual Banking goes through the consolidation of Open Finance and the use of Artificial Intelligence. So, to understand how all this is related, let's talk in this article about how contextual services operate and the benefits they bring to the payments market and banking.

Welcome to the hyper-personalization era

Some say that hyper-personalization is a trend for the purchasing journey. Beyond that, we can say that it is already considered an essential aspect to strengthen your consumer relationship and provide more assertive offerings.

In a nutshell, hyper-personalization consists of employing strategies and technologies to provide your customer with an ultra-personalized service.

That’s why the model leverages user behavior, history and data analysis—collected from a variety of channels—to build experiences that meet your customer’s individual needs.

It is a movement highly aligned with consumption trends. According to a study conducted by McKinsey, 71% of consumers expect companies to provide personalized engagement, while 76% get frustrated when that doesn’t happen.

Read also | Card user experience: how to encourage the use of your payment method?

But where does Contextual Banking come in?

In the financial universe, hyper-personalization is shaped by Contextual Banking, which enables your financial service and product offering to be a data-driven experience as well. The result is a personalized proposal in real time and, therefore, more appropriate to your customers’ reality.

In practice, the model reverses the order of supply and consumption. Unlike the traditional system, in which financial institution offer products on a mass basis, the Contextual Banking anticipate customer demand.

You know that service offering that matched exactly what you were going through in a given moment of your life and that maybe you didn’t even know you needed? That’s what Contextual Banking aims to provide.

Want to know more about financial services of the future? In this video, Bruno Diniz, an Expert in Innovation for the financial industry, discusses topics such as Contextual Banking, Beyond Banking, and more:

Your customer at the center: The new user experience in Banking and Means of Payment

As McKinsey shared in their study Rewriting the rules: Succeeding in the new retail banking landscape, warehouses in 25 of the largest retail banks in the US have doubled in the past decade, while physical branches have shrunk by 15% during the same period.

The same phenomenon is observed in other countries, such as Brazil: according to the Central Bank, the country has seen around 6 thousand branches close from 25 to July 2015—a drop by nearly 2022.

At the same time, the amount of digital banks. continues on the rise. In Latin America, for example, this volume almost doubled from 2017 to 2021, reveals research released by Fintech Americas. Today, the region is home to more than 50 independent neobanks, with the top ten representing more than 90% of all Latin American clients.

So it is undeniable that technological advances, especially the ones provided by Digital Banking have established a new paradigm for customer experience.

In this new reality, a banking branch is no longer the center of the relationship, but rather the user themselves. As a consequence, financial institutions looking to stay competitive in the industry increasingly put customer-oriented models first, especially using data to provide services within the concept for Contextual Banking.

How are Open Finance and Artificial Intelligence related to Contextual Banking?

As we’ve seen, hyper-personalization is only possible through access to data and information. It enables us to learn about each customer profile and provide the right offering, at the right time and through the most appropriate channel.

That’s why Contextual Banking necessarily involves concepts like Open Finance and Artificial Intelligence.

Open Finance, an evolution of Open Banking, is the model for sharing information between financial institutions that began to be implemented in Brazil in XNUMX and is at an advanced pace of design and implementation in other countries around the world. It is worth remembering that, in this system, it is the customer who decides with which institutions he wants to share his data and how they can be used.

The next challenge in that process revolves around working with that high volume of data. That’s where Artificial Intelligence comes in the picture, to understand the consumer behavior and enable highly personalized offerings for services and products.

Read also Open Banking in Colombia: the paths for an open financial system in the country

Why is Contextual Banking important for the financial industry?

There are many advantages for the banking and means of payment industry in investing in contextual finance. See the most relevant benefits below:

• If performed properly, personalization in scale can mean lower customer turnover rates and higher sales indexes for banks and fintechs. Annual revenue increases can reach 10%, as shown in the study conducted by Boston Consulting Group;

• The same study by BCG estimates that, for each US$ 100 billion in assets that a bank has, it can make as much as US$ 300 million in revenue growth by personalizing their customer engagement;

• Improving customer experience is still an important issue for banks and fintech. For 71% of them, improving CX is a high or critical priority according to data provided by Forrester regarding;

• Contextual Banking personalization drives performance and brings better results for customers, as shown in a study conducted by McKinsey. Rapid-growing companies lead 40% more revenue for personalization than their slow-growing competitors.

See it in action: How can Contextual Banking enhance your financial service offering?

Now that you know that Contextual Banking enables personalized offering in real time for financial products and services based on data analysis, let’s take a look at some examples of using the model:

• A given customer has a low balance in their banking account. Based on their cashflow history, the contextual algorithm identifies that a payment must be made soon, and that there aren’t enough funds. In this case, the system can automatically offer a credit solution, even before the user realizes their revenue deficit.

• In a different scenario, let’s assume that a customer is trying to transfer money to a third party. The contextual model can provide a list of options, highlighting the fastest and most accessible manner to make the wire transfer.

• Or else, the user can start anticipating their payments for a bill, and the contextual algorithm can suggest a different date for a payment so that the money is transferred to a daily liquidity investment.

Those are a few examples of how Contextual Banking can make the financial industry more fluid. However, the potential to transform the industry is unlimited.

Here at Dock, we’re keeping an eye on that opportunity. Afterall, through our Banking, Cards & Credit, Acquiring e Fraud Prevention solutions, we’ve enabled companies from a variety of industries to join the banking and payment industry and unlock their business potential. So we’re also creating conditions for our clients to take part in the transformations related to Contextual Banking.

Want to learn more about how our platform Dock One drives business? Watch the video:

Contextual Banking: Takeaways from this article

• Contextual Banking is a model that is transforming the way financial services and products are offered;
• Based on hyper-personalization, Contextual Banking involves consolidating Open Finance and using Atificial Intelligence;
• Hyper-personalization leverages user behavior, history and data analysis—collected from a variety of channels—to build experiences that meet your customer’s individual needs;
• In practical terms, the model changes the order for offering and consumption. Instead of a traditional system, where financial institutions offer products in a massive manner, Contextual Banking anticipates your customer demand;
• Technological advances, especially the ones provided by Digital Banking, have established a new paradigm for customer experience. In this new reality, a banking branch is no longer the center of the relationship, but rather the user themselves;
• Financial institutions looking to stay competitive in the industry increasingly put customer-oriented models first, especially using data to provide contextual services.

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