By Ted Moynihan
This article first appeared in Financial News on August 21, 2018 (subscription required).
Imagine it’s 2006. Which seems more likely to happen by 2018: the emergence of affordable and real-time financial advice, or a driverless car? And which would you consider more valuable?
Despite the fact consumers have been wary of self-driving cars, GPS, devices using live traffic updates, ride-hailing services, and autonomous vehicles continue to revolutionise travel. Yet easy, reliable financial advice remains unavailable to the mass consumer market.
The good news is that change is in the air. But there remains a question about whether it will be banks and insurance companies that deliver the change, or whether it will be the tech giants such as Google, Amazon, or Alibaba.
A PIVOTAL MOMENT
Banks and insurers, which have dominated financial services for generations are at a pivotal moment in their histories. The pillars that supported them – particularly high, risk-free returns using deposits and insurance premiums to buy government debt – have eroded. And while banks and insurers are in decent health after a decade spent rebuilding their balance sheets, they are not spending enough on innovation. What they are spending is not well-harnessed, but scattered across the organisations, and returns are low.
Exhibit 1: CONSUMERS TRUST FINANCIAL SERVICES COMPANIES MORE THAN OTHER COMPANIES
Percentage of respondents that strongly agree
Source: 2017 Oliver Wyman Global Consumer Survey
Yet there is still time to channel investment to prevent tech giants and tech-driven newcomers from making them yesterday’s news. Crucially, according to a 2018 survey of 4,000 consumers by Oliver Wyman, customers continue to trust banks and insurers more than the tech giants. The report found that trust, while fragile, is still an asset that many financial services firms retain, and to remain relevant they must both protect it and find opportunities to build on it.
Key to taking advantage of this trust will be redefining the way banks and insurers frame customer value. When they have talked about customer value in the past the focus has been on inward-looking metrics, essentially measuring the value that customers generate for the bank or insurer. Big Tech firms on the other hand look at customer value differently, focusing on how to create value for customers, and consequently have emerged as leaders in many of the platforms we use on a daily basis. That is a fundamental mindset shift that offers companies the chance to convert engagement and loyalty into profit and shareholder value.
To develop new products that consumers want, banks and insurers would do well to embrace the concept of ‘flywheel momentum’ – which means to relentlessly develop and improve solutions as client engagement increases. The more they improve the customer experience, the more traffic they drive to their solutions. In turn, this enriches the data they collect and the accuracy and relevance of their algorithms further, ensuring better products and greater spending by customers, and making it harder for competitors to catch up.
Exhibit 2: THE FIVE MAIN DRIVERS OF VALUE TO CUSTOMERS
The different drivers of value that customers perceive from products and services across the industry
Source: 2017 Oliver Wyman Global Consumer Survey
While incumbent banks and insurers have traditionally focused on the core financial needs of consumers, namely helping them borrow, safeguard, and grow their assets, the tech giants and fintech attackers have been solving other bigger problems faced by consumers. Research shows that consumers really value help to earn, spend and transfer their wealth more cost effectively. This is both an opportunity and a threat for traditional financial services firms. Banks and insurers that come to see their businesses as solving life’s big problems have an opportunity to offer experiential solutions with real impact.
While banks and insurers are in decent health after a decade rebuilding their balance sheets, they are not spending enough on innovation
Banks must ask themselves how they can combine product features with an immersive, engaging, and interactive experience to help consumers earn more from their savings and spend less on necessities. For those that continue to offer merely traditional banking products with largely similar features to everyone else, the future is much more limited.
For consumers, these are good times, and getting better. A Google Maps equivalent for our financial lives is on its way, with a roadmap for its development already starting to emerge. The only question that remains is whether the banks and insurers can overcome their existential crisis to deliver audacious solutions to the big problems facing their clients today. If not, they will become footnotes to economic history, eclipsed by the tech giants that have leveraged data and algorithms to disrupt and seize dominant positions in so many industries already.