Software is Eating the World, and Financial Services is Next

Like many families, my son and I both have accounts that are linked at the same bank, and of course I sometimes transfer money online when his balance gets too low. (To be fair, he works hard to earn his own money, but occasionally still needs some support!) The other day I got a notice that his balance had fallen below $25 — again. I went in to transfer some money and decided to inspect where he was spending. I noticed small, differing amounts being withdrawn daily — $1.52, $2.27, etc. — all to the same vendor. I was sure it was some sort of online gaming — or worse! After some research, I discovered it was an app he had downloaded that analyzes historical account inflows and outflows and algorithmically determines an amount that can be automatically transferred daily to an insured savings account — at another institution. I must say, I was impressed that: a.) he was actually saving his money and b.) the apps on his phone aren’t all mindless games — in fact, so much of what’s out there can improve our daily lifestyle in the long run.

Here’s my point…

Unfortunately for my bank, they lost the opportunity to expand their services and relationship with a customer very likely to grow in value over the coming years. Why? Because with the access he now has to quick savings at the touch of an iPhone screen, the extra value my bank might want to offer him might not seem as worth it. A win for FinTech.

What financial services needs to realize…

As Marc Andressen put it, “software is eating the world” and banking is no exception. Many traditional financial services players — banks, insurance companies, asset managers, payments providers — continue to claim that so called “FinTech” competitors have low market share and are not yet a threat. That may be true in the near-term — most financial services buyers are cautious and reluctant to quickly change how they spend, save, and invest their money. But in my opinion, financial services needs to think quicker — just like my son and his apps, before you know it, the next generation will demand mobile and digital capabilities from traditional FinServ vendors or else those consumers will move on to someone who CAN provide it. Heck, he is already using Venmo to pay split movies with friends! FinTech’s impact is already being felt in traditional Sales & Marketing organizations and customers who explore or experiment with these new online financial services are beginning to change buying habits and vendor expectations.

FinTech is here to stay… and here’s why…

  • It’s not just a fad: Robo-advisor AUM is expected to grow from $19B in 2014 to over $2.2 trillion by 2020 according to some estimates
  • It’s not just a startup game anymore: Charles Schwab and Vanguard have both launched robo-advice channels that are quickly becoming a significant part of their go-to-market
  • It’s not just millennials: Over 30% of the assets come from clients 50 and over

So what should traditional financial services firms do?

  1. Digitize the buying journey where possible: Firms must find new ways to engage with their customers across the buyer’s journey beyond the traditional phone and face-to-face channels — apps, mobile technology and more — or like my bank, they won’t even get the chance to compete for the business.
  2. Analyze customer data from external and internal sources: Financial services need to better understand and segment their customer base using multiple data sources so they can better address the needs of each segment.
  3. Personalize digital content to fit each unique prospects profile: Firms must leverage that segmentation to engage appropriately with each customer/prospect. My son will likely never open a piece of direct mail, walk into a bank, or take a call from a financial advisor. But he will read a text (at least I THINK he reads mine!)
  4. Enable quota bearing sales reps with better customer intelligence and digital engagement tools: Financial service firms must equip their traditional channels with better intelligence and new ways to engage in today’s environment.

Traditional FinServ sales and marketing organizations must “get their data and digital game on” or being further disintermediated in today’s environment.

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