Rapid Digitalisation Has Left Financial Service Customers Wanting More, More, More.
2014 saw the most rapid growth, with 845 startups raising funding to bring their technologies to the banking, investment, insurance and real estate markets.
However, Deloitte’s analysis which is based on data from Venture Scanner, suggests that pace has slowed rather dramatically. In 2020, only ten new startups raised capital, a majority of which were in banking, with just two being insurance focused.
So is the market saturated? Have we all had enough of being able to easily and conveniently, both access, and manage our wealth? Well, in a word no. Consumer demand and expectations are higher than ever, but the fulfilment of that has shifted.
Fuelled by global events, consumer demand for digital services has skyrocketed across all sectors, but so has awareness of corporate responsibility, sustainability and the need for companies to be more agile and innovative - all at a time when the signals seem to point towards a point of industry maturation and consolidation.
As the disruption turned to maturity, investment made way for mergers and acquisitions. 2020 saw merger and acquisition activity grow by more than seven times that of the previous year, totalling more than $55 billion.
This activity will of course see some of the new generation of financial service provider merge with their peers, some might not have survived, and some will have been acquired into the existing financial services institutions. Of those, some will continue to grow under their own brand, some will be successfully integrated into the core business of the acquiring company, but many, unfortunately, will fail to deliver on the promise. This is just how it goes with startups - a majority of acquisitions fail to materialise as expected.
Having spent much of my career working in the constant circus of start-up, growth, acquisition and exit, I know this only too well, and I have seen the emphasis large organisations put on start-up accelerators, incubators, and innovation scouts to deliver the much-needed innovation that their corporations need.
So now, if we consider the number of FinTech start-ups Deloitte reports for 2019-2020, does this mean that the innovation pool from which financial organisations can select their next innovation has dried up? Does it mean consumer demand for these services in both the retail and institutional setting has diminished?
Demand certainly hasn't diminished, being able to access banking, insurance, and investment services when and wherever they want has solved the consumers immediate need, but has left them unsatisfied with the overall experience.
“Evidence suggests that increased digital engagement does not necessarily translate into increased satisfaction […] despite the higher rates of digital customer engagement, keeping customers satisfied, retaining them for the long haul, and gaining a greater share of wallet may still be as daunting as ever.” - 2021 banking and capital markets outlook, Deloitte
With this in mind financial organisations face an interesting set of challenges ahead of them. On one hand those that have been on the M&A path will be looking to ensure the success of their integrations, and the ability to apply their newfound capabilities across a broader section of the business. On the other hand, those that have not gone this route, will be finding the opportunity to buy digital proficiency perhaps less easy and less opportune than a few years ago. This will likely mean favouring the route to create new, or expand existing internal development programmes and build their own best-in-class digital solutions.
No matter which of these particular challenges an organisation will face in 2021, focus must surely be on understanding what the customer wants, and removing as much pain and friction from this process as possible, delivering remarkable experiences that increase customer lifetime value.
Customers Don’t Care About Your Internal Structures
I use digital payments like Apple Pay and carry cash, I have a new generation as well as traditional bank accounts, I invest in digital assets as well as traditional stocks, and I manage all of this using both digital and non-digital tools.
With this breadth of experience, two things have become blindingly apparent in the past few years.
First; from a consumer point of view, almost any part of the financial journey can be facilitated digitally - whether that’s signing up for a new service, monitoring what’s going on, making changes or simply using it to achieve other goals, such as payments or wealth generation.
Second; Some organisations have eagerly adopted the digital transformation boom, others haven’t. The ones that are most frustrating from a user point of view are those that kind of have, and kind of haven’t.
As an example, my traditional bank adopted mobile banking very quickly. Their app is great, easier to use than the website. With it I can conduct all my daily banking needs, open new accounts, manage investments and my mortgage. I can even take cash out of my account without my bank card.
However, I also have a stocks and shares portfolio with them. I get to monitor the performance of that investment six months in arrears, and any changes need to be completed in writing on printed forms, then submitted by post.
Compare that to the digital-first services I use and it seems beyond antiquated, but comparing just to the other services I have from the same bank, and it’s confusingly frustrating.
As the quote from Deloitte mentions above, customer satisfaction is becoming increasingly more pressing for financial institutions of all types now. This is in part because more can be done, more efficiently digitally than ever before, but also because more people are doing it now. The pandemic has ushered even the most technically-resistant users into a new world, and now even they have high digital expectations. For example, did you ever think you’d get your parents on a video call in 2018? Probably not, but nowadays it’s normal.
As more consumers across all demographics experience the convenience and reward of being able to conduct their financial affairs digitally, they become less tolerant of the non-digital aspect they encounter.
Pandemic Raised the FinTech Bar.
COVID-19 did more for digital transformation than any high-paid consultancy or visionary leader could ever do, and in conjunction with the FinTech revolution the bar is now higher than ever. And now the whole industry needs to jump, again.
The FinTech successes have demonstrated the value of digital engagement to financial sector, but they’ve also exposed weaknesses.
Those startups that were integrated into larger organisations, whether they succeed or not, are at risk of amplifying organisational and service disparities, potentially creating new areas of friction between them and their customers.
So as we traverse through the consolidation and acquisition phase that is naturally following the FinTech boom, it is critical for financial services organisations to apply the digital learnings they’ve either directly acquired or indirectly observed, and to apply them across their entire business to deliver better, more valuable services.
Of all the FinTech lessons to be learnt from, two should form the foundation of any financial services organisation’s 2021 and beyond strategy; data + user experience. Carefully considered, well designed user experience increases usage and creates valuable customer insight data, which helps improve user experience and grows total customer lifetime value.
Remarkable user experience = usage + data + insight = Outstanding experience = increased value.
Deliver outstanding user experiences that solve your customer’s issues, and gather data that can be used to inform how you can serve them even better.
Going back to my example, there is absolutely no reason why I shouldn’t be able to track, adjust and manage my stocks and shares portfolio in the same way I interact with the bank’s other services. Well, at least, no way I care about, anyway.
At A-Squared, we excel in improving existing user experiences and uncovering new ways to be remarkable. Get in touch with us to explore how to improve how customers really experience your services.