Why You Need 750+ Categories

Labels are lazy. The brain only runs on about 12 watts of energy, so humans are constantly looking for ways to save energy. One such energy-efficient method is labeling. It’s far easier to label your neighbor as nosey or your office mate as passive aggressive than to engage with them each day to reassess who they are at that moment. But for all the effort to apply time-saving labels, people hate when labels are applied to them.

Labels box you in. They minimize your complexity, and can make you feel like your growth is stunted. So if labels are limiting, why are categories important?

Why Detailed Categories Matter

The fewer categories your aggregator offers, the more generic your customer understanding will be. There’s a significant difference between identifying a restaurant transaction and distinguishing which users choose vegan restaurants or regularly frequent fast food locations. In fact, the more detail you gain, the more nuanced your identification of an individual or household becomes.

Putting Categories Into Action

Gathering category detail is the first step, but it’s not enough to simply have these categories. You need to put the categorization to work for you. With the right implementation, categories can build a richer understanding of your users and their financial needs. 

Build User Personas

Detailed categories help you move from labeling customers to learning about them. Users vote with their wallets, and when you identify what’s important to them, you gain a greater depth of understanding about what they value.

There’s a big difference between recreation spending in scuba diving, amusement parks, art galleries, and sporting events. Imagine the benefit from knowing your user is paying for travel insurance, as opposed to life insurance. Or if you could distinguish between driver’s ed and college tuition. What if you could discern credit card payments from child support payments? How could you improve your offers if you knew user charitable donations were specifically made to environmental organizations?

Building user personas moves your user knowledge from two-dimensional to a detailed full-color, three dimensional view.

With Limited Categorization

Eats out, spends a lot on recreation, purchases insurance from multiple providers, has a new education purchase, several large recurring monthly payments, and makes monthly charitable donations.

With Detailed Categorization

• Single parent with a teen child who recently started driver’s education
• Frequents vegan restaurants and health food grocery stores
• Planning a large vacation likely for scuba diving
• Member of two gyms 
• Recently had two big car repairs, but currently has no car payment
• Regularly contributes to environmental causes

Having this level of detail about your customer’s preferences and values allows you to create a genuinely personalized experience.

Create Targeted Marketing

Detail improves your marketing. By targeting your marketing approach, you’re not squandering your user’s goodwill. Customer’s have limited tolerance for monthly marketing offers. Rather than sending generic product offers to your entire customer base, you can send them relevant offers only.

• Users only receive offers that make sense for their finances.
• Offers can be nuanced to better align with user values. 
• Relevant offers increase click-rate
• Read offers improve overall conversion rates

Consider targeted offers for the user above:

• Your travel rewards credit card highlighting the trip cancellation insurance, primary car rental insurance and lost luggage insurance that are included. The offer features a scuba visual to better align with this user’s preferences.
• A “Saving for a new EV?” car loan offer with an image of an electric vehicle and links to additional tax incentives available in your state.
• Marketing for investing options within your bank showcasing your socially responsible funds.

All three offers are far more likely to be opened than the generic offer for a mortgage or to upgrade to premier checking that have been filling their inbox for the last few months.

Increased Revenue and Improved Customer Satisfaction

Consider a few recent studies:

• Customer-centered companies are 60% more profitable than those who don’t focus on their customer’s needs.
• Banks that offered advice that completely meets customer needs improved their overall customer satisfaction by 22.9%
• Bank customers who were charged a fee of any kind in a 3 month period were twice as likely to switch banks.
• 9 out of 10 users want their banks to proactively offer financial advice.

As customer tolerance of bank fees wanes, it’s clear that customer demand and CFPB oversight are cutting into fee-based revenue. The newest metrics indicate that personally relevant and tailored financial advice is key for retention. 

A 2019 Accenture study indicated that nearly half of all consumers want customized financial advice tied to their spending habits. Categorization can help users dial in to where they’re overspending. Current FI feedback is generic and ineffective. Consider these real-life examples of budget feedback:

• Your net worth increased in July.
• You had 2 charges this week.
• You spent $573 more than this time last month. 
• Your spending is down $368 from this time last month.

While this feedback is easy to generate, it’s seldom helpful to your users. And it definitely falls short of “completely meeting customer needs.” Imagine the difference that category-informed suggestions could provide:

• Adding a new driver? Plan ahead to increase your auto insurance budget.
• Your car registration is due in 6 months, you need to save $28.65 each month to cover that cost.
• Looks like you’re planning a trip. Should we create a separate vacation budget to help you stay on top of that spending?
• Your car repair costs are increasing. Based on your current annual repair payments, you could buy or lease a car for $265/month.

Bottom Line

Improved categorization is the first step in providing a truly personalized banking experience. Categorization lays the groundwork for better financial advice and offers opportunities for better marketing. If you’re interested in learning more, contact FinGoal about building user personas.

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