Boiling Frogs: How Traditional Financial Services Are Being Disrupted (But Don’t Seem to be Noticing)

On 18 June 2014, I spoke at Top Gear, an event for financial advisors and fund managers, organised by Platforum. I was asked to do some rabble rousing about how new business are disputing longstanding customer relationships in financial services.

I’m going to talk about how new financial brands are engaging with consumers, and how this is transforming the industry, and what you should be doing about it.

I know what you’re thinking. “Oh, here we go. The wanky marketing guy, making all sorts of fanciful assertions. We won’t be able to do any of what he says because regulation. Why don’t they ever understand? Sigh.”

Actually at Albion we have some experience with regulation. We’ve worked with Seedrs, Trillion Fund, Unum and Wonga, all of whom are regulated by the FCA. You can’t use regulation an excuse for inaction and maintaining the status quo, because new growth businesses like them aren’t.

Let’s start with a fairly strong point of view: The financial ‘services’ industry has traditionally created products for its own convenience, and customers have had to work out how to use them (as there was no alternative).

You talk about products in entirely rational and technical terms, that 85% of people simply don’t understand. You’ve designed your products for rational, financially savvy people like yourselves who enjoy the sport of finding the right product, but most people don’t care enough to go through that hassle, and would rather just do what other people are doing — if only they could find out what that was.

Now, it’s suited you to keep people in confusion and ignorance, because that’s created the need for financial advice. Smart business move! But the RDR has now created around 2 million ‘orphans’ who won’t pay transparently for financial advice, but have £50k to invest, and so are now having to try and self serve.

Meanwhile, the disruptive force of the internet is (finally) starting to remake the financial services market, in three key ways:

  • Going direct (this has been happening for 30 years)
  • Radical transparency and efficiency
  • Amazingly designed self-serve experiences

I’ve observed four different responses to this opportunity / threat in the market:

  1. Business who are trying to maintain the status quo of finance being arranged for they own convenience are responding by giving old products a new veneer.
  2. Businesses who are taking a big leap towards customer centricity, by doing old products in innovative new ways.
  3. A step further on still and we have businesses creating new service layers on top of legacy finance infrastructure.
  4. And at the extreme we have some businesses who are trying to reinvent what money is for the internet era.

So let’s see what they look like…

1. Old products, new veneer

Here we see institutions investing hundreds of millions in big CSR and advertising campaigns, in a desperate attempt to rebuild trust.

For example Societe Generale’s very grand sounding CSR programme ‘Fondation Solidarite’ with their flagship event the ‘Citizen Commitment Games’. I assumed this was something on an Olympic scale, but after 10 minutes reading the site I was none the wiser. Only after spending close to 30 mins did I work out what this landmark initiative actually was — a game of Boules for staff. I think it may take more than Petanque to undo the damage done by the financial crisis…

Or here witness Barclays ‘Features Store’ ad. It’s a living checklist of diversity with people of colour, people in wheelchairs, even a hipster. The veneer they’re trying to apply is obviously borrowed from the world of smartphones and app stores, genuine customer-focussed innovation. But they’re trying to cover up a current account product that hasn’t changed a jot. I used to be able to pay them for travel insurance. But now I can “install’ it onto my “smart account” from their “feature store”. It’s totally different isn’t it? No.

2. Old products in new ways

In this category we see some genuine innovation. Propositions that are disrupting what went before, often by radically undercutting on price or over cutting on returns, aided by super-efficient business models.

This is the domain of ideas like p2b loans and p2p currency exchange.

Look at the communications in this category though, and it all looks a little same-y. They’re talking to early adopters with ‘rational messages with attitude’, that more often than not involve some mild bank-bashing — a cheap trick to get that audience’s attention.

To be fair, we’ve indulged in this, because it’s fun! Here’s something we did for Funding Circle.

Here’s what TransferWise, a growth business based in our co-working space, are doing.

And we’ve just started working with, and have invested in, Trillion Fund, a platform for crowd funding loans to renewable energy projects, which can return up to 9% annually.

What’s missing from these players is any brand building. It’s clear what they’re against, but what are they for? And how can they transcend the rational and own an emotive territory in our minds?

3. New service layers

In this category we find all-new user-centred experiences, but ones that are built on top of existing financial infrastructure.

Wealthfront for example, which everybody here will be familiar with, is an advised sale. But they are a “robo-adviser”, using software, instead of pricey human advisers, to make investment decisions for customers. It now has more than $1 billion in assets under management, achieved largely by targeting newly-rich Silicon Valley software engineers. The lesson — know your target market!

We love this one at Albion (but to be clear, they’re not a client). Oscar is a health insurance broker in New York. The product is the same, but the way they sell it is amazing. Look at this natural language interface — they’ve worked really hard to create an experience that normal people can navigate and even enjoy.

But our fave is this **TurboTax** advert. In it they manage to reposition doing your own taxes as something easy and desirable. Don’t believe me? Just watch.

4. New money

The fourth category is about reinventing the fundamentals of how money works. This looks scary and weird at the moment, but it’s the one that can ultimately be the most customer-centric, by reinventing the very fabric of money to be in service of customer, rather than in the service of Governments and institutions.

Bitcoin for example. This is widely misunderstood, not least by our sensationalist press, and a widely speculative and volatile digital currency. But that’s not it at all.

“Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. All these are exchanged through a distributed network of trust that does not require or rely upon a central intermediary like a bank or broker.” — Marc Andressen, a16z

And Marc Andressen wants to go even further, building a new bank that replaces the ‘full stack’ with modern software. This would create a banking platform open to any service provider to build on top of. When that happens, banking finally would stop being a product, and just become an enabler.

What do I mean by this? In 1920, you could buy an electric motor from Westinghouse. It came with a variety of rubber bands so it could drive your various previously-manually domestic appliances. But as motors got smaller, better and cheaper, they disappeared; they stopped being ‘a thing’. Now your car door mirror has 3 motors in it, and you don’t even know it.

Banking has been artificially kept as ‘a thing’ for 600 years, when it should just be part of the plumbing, allowing service providers to, you know, provide a service.

It’s already happening. Starbucks take more than $3 billion in deposits every year, ahead of nearly 7,000 small U.S. financial institutions.

So what?

So what does this all mean to financial advisors and fund managers?

“OK Google, I really want to be able to send my daughter to university.”

That’s not a fancy way of searching for an adviser by the way. That’s Google replacing the advisor, offering investments themselves, powered by a software bank and Bitcoin payment protocols. It will seem quaint that people ever went to an office and spoke to a person to get this done; that investing was seen as something difficult and complicated.

I urge you to DO SOMETHING. Anything. This isn’t optional. Better advertising won’t fix it. You have to stop finding excuses to maintain the status quo, and start to invent / reinvent products and services around customers needs. Because if you don’t, Silicon Valley will. You need to disrupt yourself, before you get disrupted.

But I understand that you need to manage the risk of doing so to your current business. But we have an answer to that too. The corporate startup. The best of both worlds. The intelligence, platform and funding of a corporate, with the agility, talent and risk-taking ability of a startup. We’ve done this for O2, creating giffgaff. For Aviva, creating Quotemehappy.com. And for HAYS, creating Krooter.

You can’t reply any longer on being a navigator of complex products, because that is being commoditised. You have to work out how to add positive value, in a way that is differentiated and defensible and meets a genuine customer need.


Originally published at www.huffingtonpost.co.uk.