Even the most conservative industry observer has to admit that the financial services sector is experiencing disruption like never before. New technology, combined with a reduction in regulatory barriers, is shifting the playing field. New FinTechs such as Mondo and Nutmeg have emerged across the sector. Covering payments to wealth management, they have leaner and more agile operating models and more impactful digital and customer-centric propositions than many of the incumbents.
The financial services sector is experiencing disruption like never before.
CHANGING CUSTOMER CLIENT NEEDS
We are now seeing the emergence of a new and growing client segment, which is more empowered, and digitally savvy. Largely (but not exclusively) millennials like Ollie below, reflect the shift in power to consumers. Surveys consistently bring up similar themes - millennials are less engaged with their banks, are much more likely to switch accounts and even a significant number think they may not need a bank at all in a few years' time.
The new entrants to the financial services marketplace have an obvious advantage over their older and larger rivals. They tend to be simpler businesses with no legacy system issues; meaning they can be more responsive to market needs and able to offer easy-to-use online propositions. Minimal bricks and mortar allows these new banks to refocus savings from overheads and management costs to marketing and customer experience as well as other expenditures. Having proved the value of these differentiators with successful launches, most now have ambitious growth plans to extend their service portfolios, meaning competition is only going to intensify. Existing players have seen decreasing levels of consumer trust and new entrants have leveraged these trust issues to get closer to consumers. They are engaging directly with them to understand their needs, wants, and motivations and are making it easier to do business with them. Nutmeg, for example, offers to set up its investment portfolios and accounts in only in 10 minutes. Removing jargon and offering easy to use online interfaces is proving popular to clients who are starting to sit up and take notice. By openly addressing known pain points, and by modeling themselves on popular consumer-led brands like Uber, Netflix, and Amazon, it’s not surprising they are gaining attention in a way the Financial Services industry hasn’t been able to before.
RESPONSE OF INCUMBENTS
The Financial Services sector has never had to manage this scale of disruption and increased competition before. Response has been relatively muted suggesting firms may be underestimating not only the impact, but also how rapidly markets can change. (Remember, ICI, Kodak, and Blockbuster also did this). Arguably we see some complacency amongst some incumbents, but it is clear that there is also structural inertia blocking a more rigorous and rapid response. This is something firms will need to overcome to keep up.
RELUCTANCE TO TALK TO CLIENTS
Only time (and a concerted effort) will help incumbents transform their legacy systems, antiquated cultures, and complicated operating models. But incumbents are facing increased competition right now. According to Gartner 89% of organisations expect to compete primarily on the basis of customer experience this year. To win, firms will need to deepen their understanding of their end consumers. This will ensure that requirements are addressed and market share is protected. Yet there may be some reluctance to speak to clients and due to a wide variety of concerns. This doesn’t bode well for businesses over the longer term.
IS THE WRITING ALREADY ON THE WALL?
It is not yet clear how the provider landscape will pan out but most financial services professionals believe that the days of some of the traditional players are numbered.
"85% of financial services professionals believe that one or more major financial services brands will disappear and be replaced in the next five years.1"
IT IS NOT TOO LATE
The Financial Services industry is still at an embryonic stage of fundamental transformation. Incumbent firms can sustain their current position as long as they continue to find ways to unburden decisions and operations from legacy baggage while actively engaging customers. The emphasis needs to be on listening to what clients have to say so that firms can better understand them and deliver solutions that meet their needs. So how can existing players ensure a successful transformation journey?
1. Get your people on board. Employees can either destroy progress or make success happen. Less than 80% of change-related projects are successful where there is poor engagement and adoption. Therefore, it is important to ensure that there is a well-articulated case for change so that leaders and employees feel inspired and buy into it.
2. Reinforce client trust and loyalty. Many clients feel ignored and increasingly want relationships with brands that are rooted in purpose and reflect, strengthen, or influence their own personal values. Financial Services as an industry still has a way to go. Incumbents need to listen to their clients – through meaningful, direct conversations as well as through social analysis – to reinforce relationships based on real trust as well as a common shared purpose. This is the only way to retain clients and build lifetime customer value.
3. Help future-proof the business. Faced with relentless disruption, financial services businesses need to adopt a culture of continual transformation, and either establish more flexible operating models and IT systems or become nimble while sorting through the mess “under the covers.” To do this successfully, they will not only need better client insight – but also ‘foresight’. Organisations must get better at mining and leveraging client data to predict needs, wants, and preferences and use this to inform future business and investment decisions.
Other industries, such as Retail and Telecom, are much further advanced when it comes to getting closer to their customers. Given the risk averse and conservative nature of the Financial Services industry, changing the mind-set and adopting new approaches will prove difficult. While not impossible, accepting the challenge will require both clients and employees to remain front of mind when it comes to making decisions and taking action.
1. 2016 North Highland Financial Services Survey