The personal touch
Personalisation is rapidly becoming the driver of brand value and competitiveness in financial services, as Kris Hansen of Portag3 Ventures explains
Go big or go home. That was the message to incumbents set out in a recent report published by Accenture. In 5 Big Bets in Retail Payments in North America, the global professional services company explained, rather starkly, that incumbents in the sector find themselves on increasingly unstable ground, with “most retail leaders in the top US and Canadian banks” of the view that they will lose between 11% and 15% of their revenue pool to emerging competition from fintechs, Big Tech, non-banks and challenger banks.
The reason behind this shift? In technical terms, Accenture suggests the “increasing commoditisation of the transactional aspects of payment”. To you and I, customer experience is fast becoming the new driver of brand value and competitiveness. And, quite simply, fintechs – with their innovative mindset and ability to be flexible and scale rapidly – are taking the lead in the development and implementation of new, customer-centric finance solutions.
Of course, the concepts of customer-centricity, user experience (UX) and personalisation are nothing new. Banks and financial institutions have targeted various customer sectors with tailored services and packages for many years. However, as Accenture’s research makes apparent, there’s every likelihood that for incumbents this will no longer be enough.
“Personalisation is the difference between an experience that is ‘pretty good’ and one that is amazing – and, increasingly, consumers are expecting the amazing,” says Kris Hansen, Chief Technology Officer at Portag3 Ventures. Hansen has considerable experience in the sector. Alongside his role at Portag3 – a fintech and insuretech-focused VC firm that aims to empower and invest in “visionary financial entrepreneurs” – he also holds the same role at challenger bank KOHO Financial. The common thread, says Hansen, that runs through these positions “is a love of finding ways to do things differently and to build teams that can solve problems.”
The sector, according to Hansen, has seen considerable change in recent years, particularly with regards to fintechs evolving their propositions in line with consumers. He says that the prevailing trend is towards the “less obvious”, with a shift away from features and capabilities that customers could easily ‘see’ towards more specific and niche areas of the financial services value chain that can bring “tremendous value and opportunity”. Alongside that is the influence of blockchain. “Love it or hate it,” he says, “it’s driven a new generation toward some of the very hard problems in financial services; blockchain also challenges some of the most fundamental assumptions in the industry, which is very healthy.”
Specifically, on personalisation, Hansen highlights data as a key enabler of greater customer centricity. “Wholesale data at cloud cost and scale has made the previously impossible – or, at least, impractical – easily attainable,” he explains. “I have solutions, for example, that were scrapped five years ago based on their sheer cost alone, that are now possible with a few clicks and a credit card. We’re still in the early stages of innovation in the area, with many firms still focused on getting the fundamentals right when it comes to customer centricity. The next level will be all about the evolution of expectations.”
And while those expectations continue to evolve, Hansen reiterates the importance of one key factor in any relationship between a financial services provider and customer: trust. To this end, the digitalisation of these relationships – banking via decentralised services such as apps, the use of AI and chatbots to manage customers relationships, and machine learning to understand customer requirements requires a shift in focus. “Historically, trust has been about the reputation of the bank and the size, security and track record of the vault,” says Hansen. “That’s changed. Trust is now digital. Knowing people digitally is about personalisation and relevance. Tech-focused organisations are making great progress here, especially with the contextual awareness of digital assistants. In the financial services sector, we still have a long way to go, as many experiences are very generic and irrelevant. This will be a key frontier going forward.”
Spearheading that new frontier are several startup and unicorn fintechs – those flexible, innovative organisations at the forefront of the latest technology and financial services. According to Hansen, the personalisation of financial services through the application of new technology is a key differentiator between incumbents and startups. “A fundamental principle in any business is, naturally, knowing your customer; fintech is no exception to that rule. Once you reach that point, everything you do with that knowledge needs to be personalised, and now, new technologies that have commoditised machine learning, clustering and prediction are making that possible.”
Hansen explains that those businesses that are new to the market have an advantage over incumbents, their nimbleness and small scale allowing them to implement new technologies more rapidly than those legacy organisations that “have the history and robustness of data, but just haven’t organised it to be useable”. Some firms, he believes, can move quickly to define new solutions and capture markets, but “some of the realities of the industry and which fintechs have to integrate with are a half century old and move at a glacial pace. One of the challenges of being part of a fintech firm is to be able to move with alacrity yet remain pinned down waiting for industry incumbents or regulations to evolve. Managing this and still getting new features into customers’ hands quickly is increasingly becoming a fine art.”
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The implementation of that “fine art”, will very likely change the face of the industry for incumbents, certainly if Accenture’s latest work is to be believed. For Hansen, the focus on personalised financial services isn’t going to abate. “As consumers continue to expect a more personalised experience the concepts themselves will need to be challenged. As an industry, we tend to like to structure products into decades-old categories like checking, savings, investments and so on, but with personalisation these lines will blur and people will simply get the features they need.
“I expect that simpler and more transparent products will evolve, which demonstrate new ways of thinking in financial services. Apple didn’t just create the first digital music player, it revolutionised music with the iPod – it was the simplicity and form of the device that captured the imagination of consumers. We have yet to really see this in financial services, but I’m very confident that we will.”
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FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.