Smart Data And AI Use Can ‘Nudge’ Customers To Better Offers

Data, in a way, exists as a currency.

Customers are willing to trade it, especially when they’re prompted with a nudge and the right reward.

Cover Genius CEO Angus McDonald, Fair CEO Khalid Parekh and Varo Chief Technology Officer Deep Varma told PYMNTS in the latest installment of On the Agenda that digital-first consumers are bartering transaction data for the promise of more relevance, safety and value in return from their financial services and other providers.

It’s also important to note just who among us is open to the nudge. As the new Embedded Insurance Report: Leveraging Transaction Data To Expand Coverage in a Digital-First Market, a PYMNTS and Cover Genius collaboration, shows — it’s mostly the younger tech-savvy consumers, millennials and bridge millennials.

The key is to make the offers relevant at optimal moments, with contextual prompts that make us mull how new financing, or insurance products or any range of other goods or services meet our desires, in real time. Otherwise, the nudge feels more like a nag and leaves consumers feeling cold.

At a high level, said Varo’s Varma, companies should collect only the data that they need to run operations. The firms also, of course, need to keep that data safe — which is why individuals tend to trust banks, which have the reputation of safeguarding sensitive information.

There are plenty of companies and verticals that are missing the mark when it comes to building those embedded offers as they interact with banks, chiefly because there are stutter steps involved in getting end users to even consider those rewards, or loans, or new financial products and services.

Cover Genius’s McDonald noted that within the insurance industry, for example, traditional insurers have not been able to bring a technology-led focus to offers, as they don’t have platforms or advanced technologies in place to put data in context and craft the right offers at the right time.

“Traditional insurers are reliant on second steps,” said McDonald, “and they like to kick a customer out of the bank and onto one of their websites to offer a quote and get the individuals to the insurance product. As soon as people get kicked out of that trusted [bank] environment, they’re not going to complete that second step.”

No one wants to retype their information to see if an offer (and insurance quote, for example) would be a good match. In McDonald’s words, they want to click on a link and see the quote that’s generated, for their immediate consideration.

Individualization, The Digital Consumer … And Risk

As Varo’s Varma said, there’s a difference between personalization and individualization. On consumer websites, it’s more about the former, but with financial services, individualization is key. Traditional data sets may not be applicable, nor are traditional risk scoring systems. Cementing customer loyalty, or cross-selling, can come with insight into what someone needs right now — and the willingness of firms to take chances (Varo, for example, will give a user $20 for free on the spot). Fair, in another example, offers members free international money transfer services. With knowledge that a member sends money abroad once a month for example, Fair can offer that same member alerts about better exchange rates that can lower the ultimate cost of that transaction.

The data that is exchanged — the member’s info, which tailors the offer — reflects the payback, he said.

Digital consumers, the panelists noted, are two to three times more likely to be interested in high-risk products, especially as they interact with digital banks. The Embedded Insurance report details more characteristics of these and traditional bank consumers.

Fair’s Parekh said the digital bank customers are the ones who refuse to go to a physical branch, and who may not have enough money in their checking account for traditional lenders to consider them.

“They are looking for options online that are specific to what their needs — and that are being advertised to them based on their user behavior on the Internet,” said Parekh. He pointed to buy now, pay later (BNPL) offerings that tend to be tied to riskier transactions (such as whether someone can afford a $2,000 Peloton bike), or trips to Hawaii that are paid for, well, later.

Beyond the risk, and in tandem with the long-term strategy — lies the nudge. Harvard professor Cass Sunstein popularized the concept, which contends that “malevolent” nudgers like pushy mortgage brokers can have devastating effects on consumers while “conscientious choice” architects can nudge those same consumers toward better life decisions.

Embedded Offers

Cover Genius’s McDonald said that embedded insurance, and embedded offers, represent a public good, helping eliminate the societal problem of underinsurance.

“It’s because people find it too hard to buy insurance in the first place,” he said, “so banks, financial institutions, or payments providers have an opportunity to actually help eradicate a really large structural problem.”

Proactive information extended to the user, through the use of artificial intelligence (deployed on the part of the bank or another enterprise), allows them to take advantage of better market conditions, or immediate gratification. The Starbucks beverage that suddenly comes with the push notification that, with the rewards program in place, the triple no-whip latte will be free … can pay dividends in the form of trust and loyalty.

As Varma noted, the machines (and the AI) infer, the humans confirm.

“You need that feedback loop,” he said, which can forge an emotional connection between company and consumer.

The consumer, of course, should be able to opt out of that connection whenever he or she wishes, said the panelists — and to know how, when and why their data is being collected and utilized.

The platform models, they said, make it easier to opt out of such activities and also let banks pair with FinTechs to get a sense of what individuals need from their providers.

Parekh said that big banks would not likely offer roadside assistance programs — but FinTechs would, and partnerships between those stakeholders would be able to offer a continuum of services to members.

That means offers have to be relevant, and at the same time align with a company’s mission and purpose. The best offer, the panelists agreed, is an embedded offer presented at just the right moment.

As Varma summed up: “It’s the customer’s data — and they should benefit from it.”