New Sources of Value for Financial Services Incumbents

As stressed earlier, the shape of both supply and demand is shifting across the financial services industry, creating new ways to serve changing customer needs and expectations.

Financial services have historically been delivered by firms with an integrated, in-house stack of capabilities – from distribution through manufacturing and infrastructure. However, nowadays digitization makes it dramatically easier to plug-and-play services from multiple companies into a seamless customer experience.

Digitization makes it dramatically easier to plug-and-play services from multiple companies into a seamless customer experience.

These advancements have paved the way for new players to emerge, which in turn have changed and will continue to change the whole financial services ecosystem. Having this in mind, incumbents have to make very clear choices as to what their position in the new ecosystem will be. Otherwise, they might become irrelevant, or pushed to the sidelines.

Incumbents have to make very clear choices as to what their position in the new ecosystem will be. Otherwise, they might become irrelevant.

According to Oliver Wyman, there are 3 archetypes incumbents can choose from when thinking how to deliver value in a digital economy:

1. Demand aggregators: differentiate by providing all-encompassing experiences that remove friction for customers, centered on their needs and goals.
2. Component suppliers: differentiate by crafting products that plug in to a range of customer experiences, inside and beyond current industry boundaries.
3. Platform providers: differentiate with platforms that underpin and over time broker services between many players across digital ecosystems.

Now, very briefly about each of them.

Demand Aggregator

Source of sustainable advantage – exclusive edge experience designed around customer needs empathy moments.

For instance, a Bank could be acting as a demand aggregator when serving a home-buyer with a seamless combination of its own products with externally sourced home insurance (from another bank, insurance company etc.).

Key capabilities:

• Behavioral science & customer research;
• Highly refined customer segmentation & profitability model based on personas;
• Data-driven marketing and experience metrics;
• Human-centered design discipline for unpacking customer edge experiences and end-to-end journeys;
• Solution design and assembly.

Platform Provider

Source of sustainable advantage - partner ecosystem adaptation to address widest range of needs or specific needs, by removing friction and setting standard(s).

For example, Home Insurance Platform provider could be connecting insurers to home owners in need of insurance.

Key capabilities:

• Partner ecosystem development and management;
• Web-scale transaction processing;
• Integrated sales and marketing;
• Open API architecture/streamlined process for inbound integration;
• Data and transaction processing efficiency;
• Real-time partner reporting and data/analytics services.

Components Supplier

Source of sustainable advantage - plug and play product manufacturing, easily pluggable to multiple demand aggregators, often powered by balance sheet.

E.g. Home Insurance Providers could be component suppliers, providing best-in-class products to multiple demand outlets.

Key capabilities:

• Compliance with stringent regulatory and supervisory requirements;
• Business development for orchestrating and assembling complementary components, modeled on hi-tech model (e.g. Salesforce.com);
• Product feature & pricing optimization;
• Plug and play product API architecture for outbound integration;
• Balance sheet forecasting and asset/liability optimization. 

Bringing it all together

All in all, it is more than obvious that emerging trends and capabilities will change and probably destroy some of the legacy ecosystems. Nevertheless, the disruption will create equally (or even more) valuable opportunities. The only question is whether incumbents and new players will leverage it.