Tech enablement across the wealth management value chain
Market conditions are forcing financial institutions to find new models for growth.
Currently, one of the largest identified gaps for growth is the underserved and overlooked mass affluent segment.
Rich but poorly served
Despite showing enormous promise as a potential market, the mass affluent opportunity remains largely untapped. Traditionally, financial institutions have served either the retail market with a simple range of offerings or the high net worth market with a highly personalised, fee-based approach.
The mass affluent requires more than a cookie-cutter approach to reach their financial goals but do not have the wealth to justify the time and expertise required by a personal one-to-one and face-to-face approach.
This has resulted in perhaps hundreds of millions of euros/pounds in missed opportunities for the mass affluent wealth management sector. Early attempts have fallen flat due to a lack of innovation in both product/service and approach. We have witnessed a number of financial institutions rush to market with a weak product offering and product-led marketing approach.
This approach has worked for retail consumers but falls way short of the wealth management needs of the mass affluent. What’s required instead is an approach that aligns the business model with the needs of the customer, leveraging tech and data to digitise processes that make offering a personalised approach cost-effective, useful to the customer, and profitable.
The real winners
At the upper end of the scale, some private banks begin new relationships with mass affluent customers enthusiastically offering a personal service, with a long-term view of recouping costs and profiting over time. However, this doesn’t always happen and, when this does not materialise, they sometimes pull back, leaving both parties disappointed.
At the opposite end of the scale, retail banks usually fail to meet mass-affluent needs altogether through basic product offerings that disconnect with the mass affluent customer’s personal goals.
Fintech companies might have an advantage in tech and innovation, giving them a real chance at capturing this market first, however, to date, they have struggled to infiltrate and build trust with the mass affluent market. One reason for this is because, to enable massive growth in consumer numbers, they began by targeting the millennial market and now need to move towards the mass affluent who are predominantly Baby Boomers and Generation X.
Redrawing the competitive map
As leaders adopt better, more financially viable ways to explore the mass affluent territory, disrupting the business of laggards, we’ll see a new competitive landscape.
Those that grow will successfully address these three key issues:
How and when to replace face-to-face with a digitally-enabled offering (including via video-based advisory services, self-service centres, etc.);
How to attract and onboard new clients through digital channels, transitioning from ‘push’ to ‘pull’ marketing; and
How to create a new organisational culture that thrives around the new digital-based model, relinquishing the comfort of legacy business models that hold them back.
Of those three issues, how and when to use digital services is the keystone upon which the other issues rest.
Replacing personal service with digital offerings
The goal here is to achieve a business model with a quasi-zero-marginal cost equation that will let the financial institution scale up to maximise the opportunity with minimal impact on operating expenses.
The opportunity for technology enablement across the customer value chain (client life cycle) differs at each stage, but there are clearly identifiable areas in which the industry has matured enough to find a new model palatable.
Offering a personalised user experience with outstanding service quality at scale using a quasi-zero-marginal cost model is now not only possible but highly desirable. What’s more, it has already proven successful.
One example we might point to is Valore Insieme; the first fee-based service for a large incumbent bank in Europe to be deployed in over 5,000 physical branches.
With tens of billions of euros already under management, the project has been a resounding success. The advisory service takes a holistic view of every mass affluent individual client’s wealth, assessing every financial asset to provide personalised wealth protection, growth, and succession plan. The staff that service the clients requires deep understanding of real estate, inheritance, protection, investments, and insurance. They are trained via a state-of-the-art advisory platform that supports the relationship manager in delivering personalised advisory service to every client. Using technology, this provided an industrialised approach at scale and the success of the program has been immediate and emphatic.
Early results make it clear; those that succeed in capturing the lion’s share of the mass affluent market are the financial institutions that leverage technology to create scalable, personalised wealth management solutions that provide cost-effective value to customers without the need for expensive face-to-face relationships.
Zopa and CreditLadder Partner to Help Improve Credit Scores
For people who rent, getting access to finance and loans at competitive rates can be made harder as monthly rental payments are not recorded on their credit file. However, using Open Banking technology, Zopa customers will now be able to use CreditLadder to ensure their rental payments are recorded on their credit files. In turn, these payments are taken into consideration in Zopa’s credit score tool and loan eligibility checker, Borrowing Power.
Borrowing Power is a free tool in the Zopa app that calculates a customer’s financial health score, recommends targeted actions to help them improve it and links directly to their eligibility for Zopa products. By joining forces with CreditLadder, Zopa app users that rent will have the opportunity to improve their Borrowing Power score and gain better access to cheaper Zopa loans.
Offering renters a more accurate credit score
“We at Zopa are proud to be teaming up with CreditLadder to enable our customers to report their rent payments and use them to help build their credit score. We believe that as many people as possible should have access to fair, simple and transparent products. Partnering with CreditLadder and using its Open Banking technology via our app makes it possible for us to offer those that rent a more accurate credit score, tailored tips on how to improve their credit health and access to more affordable Zopa loans in the future.” said Clare Gambardella, Chief Customer Officer at Zopa Bank.
Data from Equifax shows that just under 70% of users with a ‘thin credit file’, which is where users have two or fewer credit accounts, saw an increase in their credit score when 12 months of rental payments were added.
Sheraz Dar, CEO and Co-Founder of CreditLadder said; “There are over 10 million households in the UK who rent and our mission is to ensure they can benefit from reporting their rent payments to improve their credit score - just like home owners do when it comes to their mortgage. The partnership with Zopa is a great use of technology that can help its customers access finance at better rates simply by using CreditLadder to report their rent payments each month.”