Netflix’s Influence on Personalization in Banking

Ashley Garrison: Hello, everyone. Ashley Garrison here again with Bryan Peckinpaugh and David Catalano for our hat trick episode, episode three of Lending Made Easy. 

It’s going to be a fun one because today we’re going to be talking about Netflix. And if you have enjoyed the pandemic viewing of the last two years, I should say you probably are one of Netflix’s viewers and the thing that’s great about Netflix is their ability to really curate content. So, specifically they like to think of their product as not one product, but millions of products that they sell and update daily. 

So the question is that came in for Bryan and David this week is, is Netflix going to have any impact on banking, meaning will banks ever look at their customer experience and try to personalize it and curate products the same way Netflix does? 

Interesting topic. I think banks have a lot of consumer and commercial data, but the question is how are they using it and do they intend to follow the same path as say Netflix has for a visual media? So I don’t care who takes it, Brian, you want to go?

Bryan Peckinpaugh: Sure. Happy to, and I think it will be important, David, for us to bifurcate this conversation. I think we would both agree that on the consumer side, the financial institutions have certainly adopted some of these concepts.

I think we can obviously do better. But, personalization in banking gets really interesting as you get into the  commercial side of the house and how do we leverage those similar ideas of curated financial products for your small business and all the way up to large corporate customers knowing that at the end of the day, those people are still at home watching Netflix and they’re used to now getting that curated content in all aspects of their lives, and why not get it from your financial institution? 

David Catalano: Yeah, I think that’s a good point bifurcating that because on the consumer side, we do have some behemoths that have applied their massive technology budgets to solve that. 

I still think they probably have a ways to go, but the typical community bank who’s filled with commercial customers and who makes all of their money from commercial lending, whether it be to a smaller business or a larger business, that personalization is what they’re all about, right? 

They take a fairly well compensated relationship manager and they put that person out and that person has a book of business and they’re trying to grow their business, cross-sell new customers. And they’re trying to do exactly what Netflix has done. 

That said, it’s really hard to replicate what Netflix has done and really they’re just using the data they have and the algorithms that they built that iterates and gets better and better over time, which is what a human would do, right? 

So really, financial institutions have been doing personalization in banking for a long time. They just haven’t been doing it using a digital tool. And will they ever get there? That’s an interesting question. 

It would have to be, I’m talking about, the like the 68% under the bell. That the middle of that one standard deviation from the main and everything underneath that of community banks. Unless this technology is really low cost and easy to use, it’s not going to be adopted widely at least in our careers. That’s my take on it. 

Banks don’t hire people that have that type of background. Would they do that? I mean, potentially yeah. I mean, maybe they need a digital lending platform to make that easy. 

These technology companies like Netflix and Google and Apple and all of the people that use Amazon as a great example, use this, have budgets that are really, really large and they’re able to attract really, really bright people and apply them both on the technology side, the behavioral finance side, and the data science side. I don’t see that coming to the typical $1 billion community bank who makes all of their money from commercial loan origination.

So it has to be packaged up. It has to be delivered to them and then deployed and then iterated on just like anything else. I don’t ever see it to the level that a Netflix would have. And I do compliment that community bank because they are rooted in their community. 

They are rooted with that same type of personal service where the person is supposed to know the account and know what’s the next best product. What’s the next best curated item this roofing company needs to make their businesses better. 

Bryan Peckinpaugh: Yeah. You know, it’s interesting though David. So I bank with a very large global financial institution for protection of the innocent or guilty. However you want to look at it, I’ll refrain from naming names, but, you know, they don’t have it figured out either.

A quick story—I was in the midst of refinancing a house at the beginning of the pandemic, took the opportunity to buy a different one, all working through my same bank. And even though I had an active refi going as well as an active home purchase, I was still getting mortgage marketing materials throughout the entire journey.

I even called them and said, Hey, do you guys know you’re doing this? You need to turn it off. And they still sent them to me! These are the experiences you would never see with Netflix. And I think that’s the big thing and you hit the nail on the head is t’s a data problem and in the world we live in from a financial services perspective, it’s so disparate. 

I know a lot of people are trying to tackle it, especially the larger side of the community space and certainly in the big bank space by creating data aggregation concepts inside of their four walls so that they have at least a central place to have the data, but we’ve got to start attracting that different level of talent. 

We’ve got to look at it as not a transactional problem, which is what I think our whole industry is built on is financial transactions. Whether that’s your deposit, my loan to you, everything is centered around those transactions that happen. And we need to move to an experiential concept that that can be data-driven, but that requires all of the data in one place.

With very smart data scientists, people to work on it, but also the other side, which is, whatever you title the role, the people who know what to look for. It’s quote unquote, easy to find the smart data people that can find the needle in the haystack. 

If you tell them everything there is to know about the needle, but it’s the people that, can figure out what the needle is before they even start looking. And we don’t have many of those at all and they all live in the places like Netflix, where this whole experience idea is the crux of their go to market strategy. 

David Catalano: You hit the nail on the head. So there was an executive that was at a client company and he left and went to another company. They had a data warehouse project and they hired some really smart data science guys.

So we got on a call with the data science guys, and these guys were so lost. They’re really good at data science, but they don’t have clue when it comes to personalization in banking. They have no idea what to do and in particular to bank marketing. 

So there’s a huge learning curve for the data guys to come up that learning curve on the banking side and understanding how to go about that cross-sell. How do you talk to your customers as a bank? It’s not the same and it was evident. These guys were very, very lost. I’m sure they’re bright on the data side, but it’s only going to get you so far.
 
Bryan Peckinpaugh: Right. Right. And, you know, the sweet spot to me that is underserved today is the small business market where I think the pandemic and the PPP program taught us a lot about that. I think it became evident quickly how little we were doing to serve the small business community, to make it easy for them to bank with a financial institution. 

Having to stand up portals and all kinds of quick to market lending ideas. But you know, at the end of the day from a bank or credit union perspective, we’re providing tools to those small businesses so they can do whatever it is they do. Where we, I think lack the insight is on that, whatever it is they do aspect. 

And, David, you’re right. There are some RMs out there that are really good at it. They’re highly sought after, right? I mean, that’s the competitive difference whether the RMs is small business or commercial because they’re the ones who know the markets they serve and the industries they serve and, and know how those institutions make money and thus what types of financial products support that. 

But you know, you can go out there and look, there’s been a lot of research done in this area where the average small business owner, I think 90% plus of them, what they’re looking for out of their financial institution is understanding the specifics of them and their business, but only about 40% believe that they actually get that from their financial institution. And that’s where I think data can play a huge role is the more we can understand behavior in that space. We here call it customer value management. 

Understanding the life cycle of the client that you’re working with, what are those behavioral indicators they can at least tell you that something’s happening. It’s up to you to still dig into it and use it for personalization in banking. 

There will always be that personal aspect, but I think turning our thoughts on data and experience instead of transactions to the world of small business, if you can figure that out as a financial institution, I think it’s a market ripe for innovation and ability to capture some significant market share. 

David Catalano: I would agree with that, but the thing that Netflix doesn’t have is insured deposits, right? So you’ve got an FDIC insurance that ensures the people know that. They want to go and put their money where it’s going to be safe. That is the moat around this banking business that’s going to always be there until it’s not. I don’t know when it’s not.

I can’t imagine a world where it’s not, but there could be a time when it’s not. Maybe that’s when crypto is around and there’s blockchain. We know that that dollar is in fact your dollar because it’s crypto dollar, you’re on the ledger for it. But at the end of the day, that’s very forgiving. That adds a layer of forgiveness to this business of banking. Now I’m sure bankers are cringing when they hear that. 

Oh, my business is hard. Yeah, I’m sure it is, but it’s not Netflix hard. Netflix is a tough business. Right? So they’ve got all these people there that are subscribing on a regular basis, but that’s only going to stick as long as they keep come out with new Ozarks.

You know, they’ve got to create their content. They’ve got to buy their content. That’s a couple of big balls to keep rolling and the fact that they can hire some data scientists to drive that is probably required, not a nice to have. And in the banking business, we know today it’s not required, but it’s not nor do I see that changing in the near future.

Ashley Garrison: So final thoughts on Netflix and its influence on personalization in banking. I mean, Netflix obviously has had a huge impact on the world in which we live, especially in the last few years. So I have to ask favorite binge watching show on Netflix? Bryan?

Bryan Peckinpaugh: Well, you know, interestingly before, and I’m gonna, I’m going to cheat a little bit, cause I’m actually going to go off of Netflix.

Before we got started, I was actually talking with David about the new Beatles documentary, which I just find it incredibly fascinating. But evidence of how important the data is and understanding it, David’s probably the biggest music guy I know and hadn’t really had it served to him cause it’s on Disney+, which doesn’t yet have the data set, the reach that Netflix does to know that that’s something that should be absolute top of the list for David, because it’s, it’s incredible. 

Ashley Garrison: Absolutely. I actually just watched it myself. I had a professor when I was at IU, Glenn Gass. He’s a preeminent Beatles scholar. So we did that for kind of a fun class. It was an awesome documentary series. So awesome, what about you David? 

David Catalano: We were talking about favorite series, so Broadway Empire was amazing. I don’t know if you guys saw it. It was through HBO, but I saw it through Prime. The Sopranos—don’t ever forget them. Just because it’s old doesn’t mean it ain’t good. And then Shameless. I don’t know if you guys saw Shameless, but holy cow.

Bryan Peckinpaugh: Haven’t watched that one yet, but we just restarted The Sopranos here in the Peckinpaugh household so I’m right there with you. That’s one of the best ones ever made. 

Ashley Garrison: Well, thank you guys, both for joining us on this session of Lending Made Easy about Netflix’s influence on personalization in banking. We’ll have another fun topic next week. Thanks.