How technology-savvy and customer-centric leaders are creating new revenue streams
The term “fin-tech executive” has been coined to describe the type of leader required to drive customer-focused change in financial institutions from banks and insurance companies, to wealth managers. But the answer is not necessarily to recruit technocrats into top roles, or rush to create a panoply of new products from online services to mobile apps. Nor is it a strategy to try and cross-sell as many products and services to clients in the hope of retaining them.
As industry observer and billion-dollar hedge fund Co-Chief Investment Officer Christopher Joye told us: “Many clients are currently immobile, not loyal, and will have no compunction departing… once low-cost switching is enabled by online product processing, real-time payments between banks and government-mandated data sharing.”
Joye, who manages Coolabah Capital Investments in Australia and writes for The Australian Financial Review, says the chief executives he interviews at financial institutions are “scared witless” that they are going to be disintermediated. “They have made it clear in conversations with me that they think massive change is coming.”
This very much aligns with the sentiment of discussions by Caldwell Partners with Australian and New Zealand chief executives. At Caldwell, we are providing client solutions by securing leaders who have the courage to abandon traditional business models, create cultures of agility as customers move to new channels, and prepare for products that don’t exist today, in ways that don’t exist, and in a world where people don’t yet know what they want.
Change favors the bold, but not the foolhardy, and the leaders we recruit know what will work, what may be a niche product, and what to spend on an idea with broader popular appeal.
For example, Barclays in the United Kingdom are exploring cards for teenagers that limit or reject purchases on games, gambling or adult websites, but is analysing data on adult spending habits in order to offer more targeted goods and services in that more lucrative market.
The real disruptor
Is technology the real disruptor? The following has been doing the rounds on social media:
- Netflix did not kill Blockbuster video rentals. Didn’t high late fees play a part?
- Uber did not kill the taxi business. Limited taxi access and fare control supported the opportunity for change?
- Apple did not kill the music industry. Being forced to buy full-length albums didn’t help?
- Airbnb did not kill the hotel industry. Didn’t limited availability and pricing options contribute to this?
- Amazon did not kill other retailers. Bad customer service and experience created the need for an alternative?
The global financial crisis disrupted many of the disruptors when the open markets that encouraged securitizers and off-balance sheet funders dried up. As the pendulum swung back to taxpayer-funded banks, innovation slowed. Most home loan markets do not yet have electronic conveyancing, and for numerous managed funds, customers still need to fill out a paper application in order to invest and likewise for mortgage applications.
Most of the cost of processing a mortgage is embedded in manual loops of work and rework, and digitizing these processes will be a multi-year project, according to McKinsey’s report, Cutting Through the Noise Around Financial Technology, published in 2016.
“Digitising a mortgage application would involve creating and manipulating data fields, such as borrower income and liabilities, in a largely automated manner in the cloud . . . and would require the integration of multiple legacy systems and potential re-platforming to enable truly digitised processes. The sooner banks attack these opportunities, the more prepared they will be to compete with fin-tech attackers that have a structurally lower cost base.”
Design thinking consultant Jon Kolko, who specializes in humanizing technology, has also found in working with financial institutions that product processes are arcane and reflect outdated ways of thinking. “The product requirements document (PRD), for example — a leftover artefact of the 1980s — still seems to find its way into product development meetings, and those same meetings seem to spin endlessly around arguments about features, alignment, and time-to-market,” he says in Well Designed: How to Use Empathy to Create Products People Love (Harvard Business Review Press).
“It may seem as though we’ve collectively mastered the technology game, and that we just generally understand how to produce drop-dead products that tame the chaos of technological advancement. But those of us who build products and services — those who are behind the facade of simplicity in the murky, muddy trenches of corporations, consultancies and start-ups — are reminded of that complexity and confusion every day . . . As the market demands products that are simple to understand, robust in their technical capabilities, and most importantly, delightful to engage with, our legacy processes obviously do not deliver.”
What the new financial services executive looks like
Technology itself may look like the solution — disrupt yourself before someone else does, and use data analytics to understand and predict customer behaviour. The default thinking here is to hire a super tech-savvy leader or to staff up rapidly with digital experts, with an experienced and innovative banking leader at the helm.
It sounds simple, but the fusion of talent and technology in the financial services space calls for a deep understanding of the human capital market globally and locally, which Caldwell Partners offers. Deciding who to entrust with transforming a large, profitable business into a lithe, competitive 21st century player is in itself one of the riskiest decisions a financial services firm’s board can make. And for the chief executive, building a team carries similar threats, and opportunities. The leader of today requires a particularly high aptitude and intellect — it’s no longer just business as usual.
Team-building, in terms of “getting the right people on the bus and then figuring out where to drive it,” to quote Jim Collins in Good to Great, is one of the most important “first 100 days” steps for an incoming leader. It takes a good understanding of the new qualities needed in those who will reinvent the corporation. The key here is to assess for flexibility as well as acumen.
The “personality” of teams in the financial services sector world are becoming more complex and collaborative, with titles such as chief analytics officer, chief data scientist, chief customer experience officer, and chief design officer, among others — all ideally interacting more closely with each other than ever before.
The fusion of talent and technology in the financial services space calls for a deep understanding of the human capital market globally and locally, which Caldwell Partners offers.”
Analytics will help drive change by crawling through the data of millions of customers, looking at their risk factors and patterns of product usage to anticipate their next moves. Customer empathy will help execute at the design of both product and “customer experience” end points.
The key now is execution, and the leader’s ability to know when even a cherished idea has passed its use-by date, or has been overtaken by yet another twist or turn of the market. The hard choice may then be to abandon the strategy and move on to the next opportunity.
Execution by design
Operational processes are being streamlined with the help of industrial design gurus such as Kolko. In a recent interview, Kolko told us that his consultations with financial services institutions often start with the basics: “The quality of interaction with the customer is so extraordinarily poor that before they even think about product innovation, they need to not only understand the goals that customers have, but step back and look at how the organization itself works. You can see from the appearance of a mobile app, or the homepage of a website, that people are fighting internally for prime real estate.”
Should financial services organizations strive to provide multiple products across different segments, connecting savings and credit accounts, investment accounts, and insurance?
Kolko says that such an arrangement does indeed help to reduce customer confusion, but that many organizations still don’t sufficiently understand the emotions that swirl around money, and the products packaged around people’s lives.
“There’s a level of confusion when you have multiple accounts, which creates anxiety around, ‘Where is my money, and how much do I have?’ Splitting these things up across many providers causes anxiety, and so we see an opportunity to connect these things up. But the experience of, for example, a life insurance payout on the death of a loved one, or simply trying to track their finances, needs to be designed for the emotional response and the anxieties involved.
He adds that “making the products look like one cohesive brand rather than a whole bunch of different business units cobbled together would be a good start.”
At this contradictory time in history, characterized by slow growth meeting fast disruption, execution will separate the winners from the losers. Execution – at its heart – is a people issue, and for leaders at all levels, the over-arching key to success is an ability to achieve buy-in for the idea that people (clients and customers) matter. It’s the killer app in the technology world, and the new competitive advantage for the finance industry
About the author
+64 9 306 6633
Nick Scarlett brings international leadership experience, insights, behaviours and connectivity that he has attained through executive roles at Fortune 500 companies: a career spanning three global organizations – Zurich International, American International Group (AIG) and AXA. As a Partner, Nick is an active member of the financial services, private equity and venture capital practices.
Nick has a broad network of contacts throughout Asia Pacific. He has served on the Financial Services Council of New Zealand (formerly the Investment Savings & Insurance Association); Advicefirst Board; the Quality Advice Network Advisory Board and the Committee for Collective Investment Schemes to the Hong Kong Securities & Futures Commission.