Excessive personalization can lead to segmentation and exclusion of certain social groups, writes Rogério Melfi.
The challenge of personalization in finance
Society is made up of unique individuals, each with their own characteristics, experiences, and needs.
At the same time, we live in a collective environment, where social interactions, cultural norms, and social structures shape our financial decisions.
This duality between individual needs and social dynamics creates an interesting dilemma regarding the personalization of financial products based on data and behavioral analysis.
The rise of personalized financial services
A growing trend in the market is to offer highly personalized financial products, such as:
✔ Investment solutions
✔ Insurance policies
✔ Loans with customized interest rates
This data-driven approach aims to enhance the customer experience, tailoring products to their specific preferences and financial behavior.
The benefits of personalization
Supporters of financial personalization argue that it improves financial outcomes for consumers.
By analyzing financial history and adapting offers to individual profiles, financial institutions can provide:
✔ Optimized investment options aligned with the person’s risk profile
✔ More comprehensive insurance coverage suited to their needs
✔ Loans with lower interest rates based on financial behavior
This approach can lead to greater customer satisfaction and loyalty.
The risks of excessive personalization
However, we must be cautious, as excessive personalization can lead to segmentation and exclusion of certain social groups.
When financial products are highly personalized, there is a risk of discrimination and financial exclusion for:
✔ People with limited credit history
✔ Individuals with low financial education
✔ Those with restricted access to banking services
Rather than fostering a more inclusive financial ecosystem, excessive segmentation could reinforce existing social and economic inequalities.
The collective dimension of financial services
A purely individual approach to financial services neglects social and collective aspects of financial life.
Financial decisions are often influenced by cultural and community norms, and a hyper-personalized model may not align with these realities.
Focusing on groups and communities
Instead of hyper-personalization, financial institutions could adopt a more community-based approach, by:
✔ Developing financial policies that promote equality and inclusion
✔ Creating products tailored for marginalized groups (e.g., small farmers, social entrepreneurs, low-income communities)
✔ Encouraging collective financial practices, such as community-based savings and cooperative investments
In some cultures, group savings systems are common, where community members pool resources to invest collectively. In such cases, excessive personalization may not be the best approach, as it could disrupt traditional financial practices.
The role of financial education
Beyond product personalization, a more collective approach should focus on:
✔ Financial education initiatives that empower individuals and communities
✔ Promoting financial literacy to help people make informed and responsible financial decisions
Striking a balance: personalization vs. inclusivity
While personalization can bring financial benefits, it also raises concerns about privacy, exclusion, and the neglect of collective financial realities.
The key challenge is to balance personalization with broader societal considerations, ensuring a more equitable and sustainable financial ecosystem.
📌 Article originally published in Finsiders Brasil.