By Andrew Roberts, Senior Partner, Vivaldi London
According to Gartner by 2030, 80% of heritage financial services firms will go out of business, become commoditised or exist only formally but not competing effectively. So is their demise inevitable? Not necessarily. Rather than adopting a ‘me too’ strategy mimicking the nimble disrupters, finance brands should start with understanding how they can support the lives, needs and passions of their customers better.
We are moving from an era where finance brands lived in insulated ivory towers, a ‘World of Walls’ to a new age driven by the ‘World of Webs’. In this always connected world, finance brands must build genuine interactions with customers to help drive future growth and address their changing needs. Yet traditional finance brands have been slow to respond to the disruptive change impacting the industry. They have been hampered by top down, centralised and often analogue systems in a digitally native and data-led world.
New challengers in areas like banking, fintech and insurance have innovated by starting with the needs of their customers and then built business models and solutions suited for their lives. In shaking up the previously closed world of finance, they have harnessed technology to create new products, market places and platforms. According to research from EY 64% of consumers worldwide have used one or more fintech platforms, up from 33% in 2017. By 2023, it is predicted Europe’s ‘neobanks’ will win up to 85 million customers, reaching more than 20% of the population over the age of 14. So how can finance brands adapt to the new world?
- Think shared value, rather than just shareholder value
In late 2019, The Business Roundtable – a group of CEOs from major U.S. corporations (including many FS institutions) issued a statement dropping the age-old notion that corporations function first and foremost to serve their shareholders and maximise profits, but instead that it should be about investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities. In an industry traditionally focused on shareholder value, this has big implications for financial brands.
A year on, the pandemic has even more starkly revealed the increasingly interdependent world we live in and the need for a new approach. The ‘value creation’ of a company can be the responsibility of a host of different players. This includes the company itself, its customers, suppliers, partners, and other stakeholders. It also even includes competitors, along with other players in the wider ecosystem from observers to government agencies. This is something Vivaldi calls an ‘interaction field.’
Key to embracing ‘shared value’ is a fundamental cultural shift in viewing customers and suppliers as valuable partners rather than just someone a finance brand has a transactional relationship with. The lack of shared value in existing relationships is often the result of the long standing nature of these associations. A bank will often have a customer’s mortgage and bank account with that customer staying with the same organisation for 20 years. It becomes something of a loveless marriage with loyalty taken for granted. Financial organisations can succeed by re-framing the understanding of the relationship.
Key to success in any relationship is listening to your partner. This is something the disrupters have been so good at. For example social finance company SoFi carved a niche for itself in student loan refinancing, before expanding into mortgages and wealth management. This is because its users had asked for help with other aspects of their financial lives. SoFi operates on a membership basis, and provides complimentary financial advice for all of its members. Its users helped with the value creation of the company. This type of collaborative approach can engender genuine and not assumed loyalty.
- Focus on solutions, not products
The challenge for traditional finance brands is they have been built very much on a pipeline model. Ie. I take your money for a specific product like a pension and you trust me to invest your money. The new challengers have been so strong because they start with the customer’s needs and then build out solutions. A product like Revolut works to help educate customers on how to budget better or take the pain out of common situations like bill splitting. It is ground up, not top down and reframes the role of the brand, from being solely concerned with money and specific products to helping people better manage their lives with advice and guidance.
Meanwhile a raft of new fintech disruptors have developed new ways to help people get access to financial products. Digital addressing startup OKHi has developed an innovative platform to solve address verification for financial services, an endemic problem that holds back financial inclusion across emerging markets. The technology enables any business to collect an accurate address from their customer via their mobile phone, verify it and navigate to it. It started with a real challenge in the lives of people, that billions of people worldwide don’t have a fixed address and postcode, and then developed the solution.
- Respond swiftly to changing circumstances
Being immediately responsive is crucial in tackling the multitude of new challenges in today’s fast-moving world. The challenge for traditional financial brands is being encumbered by legacy systems and fragmented data sources, with lots of information held at the local or even branch levels. The oil tanker analogy applies here. However, traditional finance brands have the opportunity to consolidate their large data resources to really drill into the patterns of behaviour of their customers to develop fast, actionable insights.
The shock of the pandemic has really brought to the fore the need for rapid, responsive innovation. Those who have responded have built up a bank of goodwill. For example insurance provider Admiral recognised peoples’ massively reduced car use during the pandemic and offered and refunded £110 million of insurance premiums to car and van customers. Meanwhile In the US fintech loans company Kabbage worked with other fintechs like Lendio, Finix, and Fundera to launch a platform allowing consumers to buy gift certificates to support local small businesses during the coronavirus crisis. The gift certificates could be redeemed at any time, but small businesses received the revenue within one business day of purchase.
- Put purpose at the heart of your mission
In 2020 it is also crucial to have a purpose-driven offering. This is becoming more important than ever with the increasing purchasing power of millennials and generation Z. Of course this needs to be built on genuinely sustainable foundations and not just ‘greenwashing’ or ‘woke washing’.
For example Deutsche Bank’s initiative #whybanksmatter has started from first principles, why a bank should exist and what the changes in today’s world mean for a bank’s role in the economy, the planet and the platform revolution. This includes how banks can become valuable partners for businesses, households and investors focusing on what is changing, what needs to change and how banks can be a catalyst for this – including investing in people and projects making a positive difference in the world.
Meanwhile insurtech company Lemonade has had a remarkable ascendancy of growth. It became the best IPO debut of the year after gaining 140% on its first day of trading in July. The company reverses the traditional insurance model as a public benefit corporation and certified B-Corp. Social impact is part of its DNA, legal mission and business model. The company takes a flat fee and gives back what’s left to causes its customers care about. In doing so customers are invested in not falsifying claims.
- Develop a company-wide ‘strategy to action’ plan
Finally, finance brands need to embrace the internal transformation to enable them to respond to the changing external situation. A new methodology is needed to help reframe challenges and opportunities from the customer’s perspective by leveraging the dynamics of a customer-first & digital-first world. The new thinking needs to be embedded at all levels of a company. From rolling out employee engagement programs, facilitating action-learning workshops and building marketing capabilities and teams. However, strategy does not drive growth if it isn’t implemented in the right way. This needs to then be rolled out through customer journey mapping, content marketing to campaign development, to transformation through digital product design and platform development.
The future is going to be about creating value for everyone. Finance businesses that solve the immediate challenges of people today and also the major social and economic challenges of the future are the ones that will survive and grow.