How Financial Institutions Can Use Transaction Data for Personalized Banking Through Channels Including Digital Banking Solutions

By: Marla Pieton, Sr. Director, Influencer Marketing and Research

The housing market has always been an area where consumers and financial institutions keep a strong pulse on overall activity. However, in recent years, challenges have risen and intensified due to the inflationary environment driving up interest rates and also reducing inventory. Alkami’s State of the Industry: The 2024 Telemetry Data Report reveals the significant impact of increasing interest rates and costs on both homebuyers and renters. In order to better serve consumers, financial institutions should evaluate their digital banking solutions and evaluate where they can extend their offering to fill in the gaps and enhance financial literacy.

In recent research commissioned by Alkami, in partnership with The Center for Generational Kinetics, 74% of digital banking Americans think that purchasing a home helps wealth building (as opposed to hindering it), including 82% of baby boomers (59-65) compared to 64% of Generation Z (22-27). While the perception is aspirational, the reality for some continues to come with challenges, lack of purchasing power and a question of affordability. The below will highlight trends and offer insights for financial institutions to better support their account holders.

Rising Rent Costs

One striking finding from the report is the sharp increase in rent payments over the past few years. From Q3 2020 to Q4 2023, the average monthly rent payment surged by 24.4%, reaching $971 per month (Page 6, Figure 1). This steep rise has put a considerable strain on renters, many of whom are already struggling with other financial pressures.

Key Data Points

• Rent Increase: Average rent payments increased by 24.4% in the past 4 years, up to $971 per month in Q4 2023
• Impact on Renters: A significant number of renters are now paying more, likely placing a strain on other living expenses.

Homeownership: The Need for Purchasing Power

The challenges are not confined to renters. Homebuyers are also feeling the fluidity of the market, as owning a home becomes increasingly elusive. Only 10% of digital banking Americans without a mortgage are extremely or very interested in purchasing one in the next 12 months. The report highlights a dramatic decline in mortgage originations, which dropped by 72.5% from December 2020 to December 2023 (Page 7, Figure 2). This decline is driven by a combination of skyrocketing home prices and rising interest rates.

Key Data Points

• Mortgage Originations: A 72.5% decline in mortgage originations from December 2020 to December 2023 (Page 7, Figure 2).
• Home Affordability: In December of 2019, a square foot cost $149. In December of 2023, this cost had increased by 47.6% to $220. (Page 10, Figure 5).

The Rise of HELOCs

As traditional mortgage options become less viable, many homeowners are turning to home equity lines of credit (HELOCs) as an alternative means of accessing funds. The report notes a 24.2% increase in HELOC originations from 2020 to 2023, indicating a growing reliance on this financial product (Page 11, Figure 6).

Key Data Points

• HELOC Growth: HELOC openings in May 2022 were 49.4% higher than in May 2021. May 2023 HELOC openings declined year-over-year, but were still 14.5% higher than May 2021. (Page 11, Figure 6).
• Utilization Trends: More homeowners are leveraging HELOCs to tap into their home equity, providing some financial flexibility amid rising costs. The average drawn balance on a HELOC rose by 31.7% from December 2021 to December 2023. (Page 12, Figure 7).

Recommendations for Regional Community Financial Institutions (RCFIs)

RCFIs have an opportunity to adopt proactive strategies to support both renters and homeowners. Insights derived from transaction data that sits in a financial institution’s ecosystem can unlock insights for targeted messaging through financial services marketing automation on digital channels. Here are some key recommendations based on the report’s findings:

• Offer Competitive HELOC Products: With HELOCs becoming more popular, financial institutions should ensure their HELOC offerings are competitive. This includes providing attractive interest rates and flexible terms to appeal to a broader range of account holders.
• Be Ready to Offer Refinancing: As interest rates potentially stabilize or decrease, banks and credit unions should be prepared to offer refinancing options to account holders who have taken out mortgages in the past 18 months. This can help lower their monthly payments and improve financial stability.
• Provide Financial Education and Support: Many consumers are navigating complex financial decisions without sufficient knowledge. Financial institutions can offer educational resources and personalized advice to help account holders make informed choices about renting, buying, or leveraging home equity on all their channels, including their digital banking solutions.
• Develop Targeted Marketing Campaigns: Utilize transaction data to identify account holders who may benefit from specific financial products, such as HELOCs or maybe paying their mortgage to a competitor. Financial services marketing automation can increase engagement and help account holders feel supported in their financial journey through targeted offers and personalized banking experiences.
• Enhance Digital Tools: Invest in tools to enhance digital banking solutions that provide real-time insights and personalized recommendations for account holders. Tools that help account holders manage their budgets, explore loan options, and understand market trends can significantly enhance their financial well-being.

Conclusion

The housing market presents volatility for both renters and homebuyers. By understanding the trends and proactively addressing the needs of account holders, financial institutions can play an impactful role in helping individuals navigate these difficulties and remain financially well. Offering competitive products, personalized support, and educational resources will not only enhance satisfaction but also strengthen the relationship between consumers and their financial