Any time we stick an adjective before banking, it must be for a good reason. Why is this modifier needed? How does the lens through which we look at banking differ from what came before?
An increasingly common term is “engagement banking”. Engagement banking reflects a new imperative: make every interaction count. It’s part of a broader trend — one in a cluster of new ways to describe this emerging phenomenon. Other related terms are “relationship banking” or “personalized banking,” which both describe the same behavior. These are all designed to show the primacy of proactive management of consumer relationships.
Engagement banking is needed because customers aren’t happy enough with their primary bank. Common complaints include poor service, inconsistent digital experiences, and gaps in mobile functionality. A study last year from J.D. Power found that among direct, online-only banks customer satisfaction declined as customers used mobile apps and website features less frequently. Younger customers, Millennials and Gen Z, are more likely to change banking relationships after a bad experience.
When delivered successfully, engagement banking can create a deep and lasting relationship between a customer and their banking institution, moving beyond transactions to a true partnership, built on value, relevance and trust.
Engagement banking has three pillars. We will look at each of these: Personalized experience, Seamlessness and Interactivity. When effectively combined, these pillars can deliver a banking relationship that feels (and is) objectively better for both the customer and the bank.
Part I. Personalized
Engagement banking is customer-first — but it’s also data-first.
To personalize at scale, banks must move beyond one-size-fits-all segmentation. To do this, banks must take a large, undifferentiated group of customers and figure out how to split this heterogeneous mass into cohort groups, a process called tiering.
Banks can consider a wide range of attributes, such as digital interactions, combined account balances, customer behaviors, or even non-financial factors like loyalty program participation to build customized, multi-dimensional tiers. Customers can be grouped by geographic data or everyday life events to better understand what might interest people and what’s profitable for the bank to provide. The more granular and adaptive the model, the more relevant the experience becomes.
Once tiered, offers and messages can be rolled out to relevant cohorts. These will inherently be more relevant compared with generalized offers. There’s no longer a worry about sending information on a college savings account to empty nesters or people without kids – that’s already programmed into who gets the offer.
Over time, these tiers can become increasingly granular, allowing banks to get closer and closer to a truly personalized offering, where no two customers have the same experience with the bank. This drives both relevance for the customer and higher product uptake for the bank.
What this means for customers: Data enables customers to get better and more relevant products, offers and communications. They see tangible benefits beyond what can be rolled out generally/publicly, so they see the value their bank places on their business.
What this means for banks: The more personal the bank experience, the closer the customer feels to their bank institution. Banks can focus on what matters to particular sets of customers, as opposed to try to approximate a ‘best fit’ scenario for its entire customer base. When done strategically, this should reduce churn and leave a more loyal customer base.
Part II. Seamless
Seamlessness isn’t just about convenience — it’s about eliminating friction wherever it hides.
Early attempts at digitization in banking were clunky. Accessing online banking portals took time and they only contained limited information. Mobile access wasn’t even a thing, and many core bank functions couldn’t be done online.
Years and millions of dollars of investments later, things are much improved. Functionality across channels is increasingly aligned, meaning that customers can choose whether to receive communications by in-app messages, emails, or personalized greetings. Communication is also contextual, with each message being a part of a consistent, relevant narrative.
One way to move to a seamless experience is to trade notifications for nudges. Nudges are, according to one definition, “a gentle push in the right direction. It’s a prompt that shows up based on what a user is doing on your site… Nudges give these users a bit of encouragement.”
This pushes people towards behavior that’s in line with their overall direction of travel, towards where they were going anyway. Nudges work because they aren’t “pushy” – they make a choice that’s beneficial to the individual and feel like a natural progression of what’s come before.
For banks, nudges offer a path to proactive engagement without being intrusive. Instead of hawking products, they use signals from customers on what to do next. Banks must gauge feedback and responsiveness; otherwise, what a bank may think is a nudge may be seen as “irrelevant” spam.
Seamlessness also requires incorporating user behavior into the process. One consideration is time of day. Banks can see when customers use banking apps and time communications to fall into this window. That ensures that a relevant offer won’t fall into huge piles of messages an early riser receives in the late evening.
Increasingly, the ultimate goal of seamlessness is to make banking feel invisible. Invisible banking uses a combination of advanced technologies – AI, the internet of things, embedded finance – to create a more intelligent banking experience
What this means for customers: A bank that anticipates customer need. Instead of applying for credit, they could be pre-approved based on spending patterns and income data. Logins are replaced by timely, context-information notifications. Friction disappears. A truly seamless experience doesn’t feel like a bank at all.
What this means for banks: An invisible bank can also be a more efficient one. The operational changes needed to create a seamless experience use advanced technologies that can also save money. AI agents, smart workflows, and eligibility automation, these ensure banks can scale faster than their cost base.
Part III. Interactive
Interactivity is the ability of a bank to adapt to its customers. It’s related to seamlessness but more focused on using data points and feedback to change what’s done next.
One area where interactivity can be deployed is through material. Banks tend to create vast volumes of white papers, articles, guides and explainers. These are used to adorn the shelves of retail locations or given as take-home materials after meetings with an advisor. But in today’s digital world too many of them are thrown into some distant corner of a website, seldom accessed. A recent J.D. Power found while the majority of customers said they want financial advice, only 42 percent remember actually getting it, “suggesting that much of what’s offered is so generic that it doesn’t register.”
Interactive programs can create behavior trees. If someone opens a new debit account, they can be sent a basic explainer message with the ability to download a larger, more in-depth guide. Those that do, can be programmed to get follow-up information three or four weeks later, while those who prefer a more self-guided approach may receive updates upon request.
The key factor in being interactive is the inclusion of choice. Are you consistently giving users an explicit or implicit choice? It’s a question frequently discussed in video games and has relevance here – users will respond better if they have a chance to meaningfully impact the outcome.
For banks, this interactivity yields behavioral insights: Who responds? Who ignores? Who needs a different approach?
What this means for customers: Customers can see how they are impacting how their bank behaves. They get real, meaningful choices that ensure their relationship bends towards their preferences.
What this means for banks: Creating educational material, products and offers takes time and costs money. By incorporating true interactivity, banks ensure that effort is in service of things their customers present and future actually want.
What engagement banking isn’t: The CE vs. CX debate
While we mentioned that engagement banking isn’t the only way to describe this behavior, we need to examine one caveat about what engagement banking is not. A piece in The Financial Brand discusses the difference between customer experience and customer engagement.
Customer experience is inherently transactional. It’s focused on a specific point-in-time interaction, including ATM withdrawals, call center contacts, online banking transactions, and face-to-face meetings where someone deals with their bank. These are tracked and logged with the idea of creating profiles of customer behaviors.
Customer engagement or engagement banking is the cumulative impact of these interactions and how they all build on each other. This gets at the underlying (and overarching). Engagement banking, when done properly, builds trust and loyalty and allows financial institutions to provide the service banking customers need and demand.
Experiences are just that – how many times someone is interacting with the banking institution. Those looking to create a true engagement approach need to ensure this contact has a meaningful rationale and is part of an overall strategic pattern.
Conclusions
Engagement banking isn’t a new feature. It’s a redefinition of how banks create value. True engagement banking can be challenging. It takes time and resources to do well – it is not simply “banking as usual.”
However, the rich data that organizations receive in the progress of transitioning to a real engagement banking model should allow them to ultimately create longer and deeper customer relationships. These can be rewarding for both the customer and their bank – and are critical as consumer loyalty is dropping and customers, regardless of geography, have more choice than ever.
