Developments in technology, unmet customer needs and the sheer size of the Financial Services industry are attracting new entrants, large and small, and driving trends that could lead to major disruption in the market structure in the not so distant future. Is the Financial Service industry prepared?
- Reinventing Current Services: Start-ups are exploring opportunities to enter the Financial Services industry using new technology, digital channels and creative business models to provide alternatives to the incumbents’ offers. Signals of this trend can be found in multiple aspects of financial services. In the merchant payments arena, Dwolla’s offer completely sidesteps credit cards. Lending Club, Prosper and Zopa peer-to-peer lending platforms completely remove banks as loan intermediaries. Tradeo, eToro and ZuluTrade enable investors to gather insights from others in their social networks and to copy the behavior of high performers, potentially displacing financial advisors. Alphaclone uses high-performer cloning to achieve a similar goal. The offers and the service channels knocking at the Financial Service sector cannot be dismissed.
- Addressing Underserved Markets: While some leading financial institutions pursue the Mass-Affluent, start-ups are using Big Data and technology to significantly lower the cost and risk of servicing segments that currently may not seem as profitable. For example, ReadyForZero and SaveUp use technology to offer debt consolidation and debt management services. ZestFinance, Cignifi and Progreso Financiero use Big Data to assess consumers’ creditworthiness, leading to a higher loan approval rate and lower default. BillFloat offers an online bill payment service at a lower interest rate than pay-day loan operations, with the possibility for customers to improve their credit scores over time. Kabbage and OnDeck use technology to expedite the process of offering small business loans online. Could these small business owners be the future Mass-Affluent, with no loyalty to the current incumbents?
- Redefining the Banking Experience: While some financial institutions struggle with the dichotomy between personal branch interactions and a more digital approach to banking, others are taking an innovative, human-centered approach to financial services, completely redefining what a bank does and how it interacts with its clients. For example, the Spanish bank BBVA worked with the design firm IDEO to redesign the ATM experience not through further automation, but through humanizing the machine. Currently in alpha-version, the Movenbank is developing a human-centered approach to banking and creditworthiness scoring. The Deutsche Bank is using videoconferencing and smart technology to enhance its advisory services offer, and simultaneously offering a kids care center for parents wanting to come to the branch for services. As the likes of augmented reality applications and holographic technologies evolve, the boundaries between digital and physical interactions may disappear, giving banks the opportunity to become a more integrated part of customers’ everyday lives.
- Leveraging Trust and Big Data: While Big Data is being used by a number of financial service institutions to advance customer interactions, it is also attracting well-established players from adjacent industries, disrupting the financial services market structure. For example, Tesco, a U.K. retailer, currently offers a number of financial products and may soon introduce full bank accounts. Amazon has been growing its presence in the financial services space and recently announced “Pay with Amazon”, a service that allows users of any participating sites to fill in their Amazon payment and shipping info with the click of a button. Walmart, in collaboration with American Express, offers “Bluebird”, a checking and debit alternative addressed to the underbanked, and is planning to expand that market. Facebook, Google and Apple have either announced or are rumored to be announcing financial services products. All of these companies are heavy users of Big Data that can be used for targeting and customization, and a significant online and/or physical presence that they can leverage to reach a loyal customer base.
Some of these incipient trends may never pan out, or regulations may delay their evolution. New ideas will come up as needs and technology evolve. Understanding how well these new concepts address customers unmet (or undiscovered!) needs and threaten to disrupt the status-quo is crucial to timely response to change. Is your organization prepared? Advanis can help you walk the path to the future.
Adriana Bernardino is the EVP of Research at Advanis. A love for change, diversity, and creative problem solving has inspired Adriana’s work at Advanis, where she has applied innovative research methods to help companies in multiple industries address a wide range of challenges—from launching industry-changing products, to optimizing entire portfolios, or designing best-in-class services from the customer’s perspective.