Fintechs and Other Financial Firms Learn from Social Media

Is Klarna the new Instagram? No, but they’re clearly taking notes

Nobody has mastered engagement quite like social media. Gathering data about the content users consume most frequently, firms like Instagram generate personalized feeds and ads, which keep us all returning to the app. Ever feel like you just can’t look away from your TikTok? That’s because the algorithm has you figured out. These apps use AI and machine learning algorithms to learn about users and push out relevant content. Beyond improving engagement, AI personalization can allow firms to show users the kinds of products or deals that would best suit their interests, without wasting valuable space—and limited attention spans—on irrelevant content. Fintechs and other financial firms are starting to borrow ideas like this from social media.

Nobody knows me like the algorithm

If imitation is the sincerest form of flattery, social media platforms should be blushing. Klarna, a BNPL fintech, has clearly found them inspiring. Let’s take Instagram, for example. Instagram feeds are a personalized collection of posts. Casual users, influencers, small businesses and large corporations can upload content that organically appears on feeds as Suggested for You posts, distributed to users by an algorithm based on their interests and engagement with similar subject matter. This creates a hyper-specific, seemingly endless stream of content. These feeds are often so well calibrated to individual users that I sometimes find myself wondering if my phone can read my thoughts as I scroll through my Instagram. The algorithms weave Sponsored posts between recommended content. These posts are also targeted, but firms pay Instagram to distribute their content to specific demographics, and often allow users to jump directly to the firm’s native storefront or website.

Perhaps feeling inspired, in April of 2023, Klarna introduced an AI-driven shopping feed with personalized recommendations and offers, essentially creating an automated digital shopping concierge. On the feed, Klarna provides special discounts or promotions, showing users deals that would interest them most. Additionally, users can see products and stores that match their interests. Klarna then allows users to navigate directly to the relevant site to make a purchase, offering a streamlined selling ramp.

Feeds like those offered by Klarna or Instagram are probably unnecessary for most financial institutions, but firms could use certain elements from these apps to offer a more personalized experience. For example, to promote cashback deals for brands that align best with the user’s spending history. Firms could also use this kind of personalization to cross-sell, showing users financial products that target their needs. Beyond selling, feeds can also allow firms to house market news and educational content, prioritizing articles that best appeal to user’s interests.

Feeds aren’t for you, what about stories?

Most Americans use social media, spending over an hour each day. Scrolling has become a national pastime. Jakob’s Law holds that users spend most of their time on other apps, and thus want your app to function similarly. The ubiquity of social media means that many financial service users also use apps like Instagram. Firms could leverage this familiarity to present personalized content like financial insights or highlight new features.

In addition to feeds, Instagram offers Stories. Unlike feed posts, Stories last 24 hours and are mostly content from accounts that the user follows. Like posts, firms can pay for Sponsored Stories, which can appear to anyone. Klarna uses a story-like feature to announce app changes or provide its annual personalized financial review, Money Story (Fintech Monitor subscription required). The interface offers an interactive review of spending over the previous year, with trivia questions, graphs and visual guides. In its 2023 Money Story press release, Klarna reported a 68% year-over-year increase in users setting up or updating their in-app budget, and noted that Money Story promotes its budgeting interface. These tools can add an additional venue for client engagement, while encouraging users to interact with other features. They can also make finances seem less daunting, presenting a bite-sized analysis.

Firms should be careful and considerate when evaluating integrating features like this. After all, they handle people’s money, not their vacation snaps. UK-based fintech Monzo faced backlash for its Monzo Wrapped annual recap, which mirrored a social media story. The firm let users know their top categories, and sometimes indicated that they were in the top percentile of spenders at a particular retailer. In light of the British cost-of-living crisis, many users found a review of their rising expenses for things like train fares and fast food to be a painful reminder. Others just found the analysis embarrassing. Some people just really like McDonalds and are okay not knowing the full extent of their love.

Additionally, Klarna recently launched AI-backed personalized recommendations, having previously integrated AI into its customer service chat bot earlier this year. The use of AI has become central to Klarna’s brand. The firm regularly introduces new AI-driven products and discusses their use of the technology in blog posts. In particular, AI allows Klarna to add personal touches throughout the app, automatically. The firm has continued to expand as a shopping platform, growing far past its roots as a financing solution. The move towards social media like elements, including feeds, aligns with the firm’s strategy.

For more on how firms are borrowing from social media, look for CI’s Q3 Mobile Monitor report (subscribers only). For access, learn more about subscribing to CI’s research services in Mobile, Fintech and other areas. And return to our Insights section for more on the latest trends across financial services and healthcare.