FinTech Platforms and Customer Obsession?
At the heart of FinTech’s rise is the ability to focus on meeting customers’ unmet needs. It gained traction by servicing the unmet need for customer segments that are under serviced by traditional Financial Institutions. This entry strategy allowed the early FinTech’s to mature and move towards other segments where they could compete on pricing because their cost models were non legacy and digital tech driven.
Competing on pricing got everyone’s attention because if there is anything that can cause customers to switch loyalty, a lower price point must rank top 3. In banking, attrition isn’t the wicked challenge, it is the ability to acquire new customers and up-sell and cross sell to existing customers.
FinTech itself has since evolved to include neo banks, multiple business model innovations, including FinTech for wealth management. In the meanwhile banks have flexed their cash and customer data muscles and are co-opting and competing with FinTechs.
But here is the nub; FinTech and traditional Financial Institutions’ approach to embracing digital capabilities is fundamentally different. FinTech’s only shot at success is to be customer obsessed. They have gone down that road, sometimes stretching the viability of the model to incredulous levels. Banks on the other hand have a lot of existing turf and business models to defend and are ensuring they deliver on the promise of “ease of use” / on demand availability. Pretty much, table stakes for the digital generation.
To be fair to the banks, this itself is a significant shift that very few of them are able to pull off. This difference between “customer obsession” and “ease of use” is at the heart of the challenger versus incumbent debate. The former believes the “value” of being customer obsessed will pay off handsomely while the latter believes that improving the effectiveness and efficiency of existing business models is the need of the hour. Some banks are trying to do both by smartly becoming the back end of the customer obsessed FinTech’s in an attempt to create an alternate channel but my bet would be to learn as well.
But there is a larger battle at play here; it is the battle for who will own the customer? This is important because it is in this battlefield, the promise of on-demand will clash with the philosophy of customer obsession. The unknown of time is what is resulting in paranoia or excitement depending on your vantage point.
To explore customer obsession a bit more, one needs to realize that successful FinTech business models are built around becoming platforms. As much as we talk about apps today, we will talk about platforms tomorrow (not that we don’t already). Platform is a manifestation of a digital first thinking; it isn’t a construct of “also-available-at-every-point-of-sale” (digital or physical) thinking.
Platforms might be the most creative business model inventions of the digital age and also arguably the ones that require the most creative “Imagineering”. The ingenuity of platform thinking is to find value in the transparency of connecting supply with demand and the resulting virality where more demand comes in and results in more supply. This network effect that is built around transparency is impossible for a traditional bank to match. The curious thing is that the banking business models historically started as providing “similar” value but without transparency and today with Internet and digital technologies that value has disappeared in some of the areas.
Another fascinating example is the blockchain. It will perhaps spawn more platforms than can even be imagined today. As much as we speak about design thinking, data science, IoT today; we will end up talking about and consuming blockchain based platforms much like we take the Internet for granted.
Platforms that deliver this level of transparent value that cause network effects to come into play create a virtuous circle. This network effect exponentially increases the ability of the platform to learn more about the customers. Thus quickly ramping up the capability to anticipate needs and become an advisor to the customer as well.
There is invariably the aspect of regulations to consider. But here is the beauty of the platform thinking; platforms thrive on the regulation of its users which arguably are better at business practice regulation than the govt regulations themselves. I see platforms requiring two layers of compliance; one regulatory the other from user groups. I see platforms making some of the transparency linked statutory requirements redundant. An over simplified yet pertinent example would be to see how changes being planned on Twitter caused a firestorm of #RIPTwitter even before the proposed changes were fully understood.
This brings me back to customer obsession. Platforms will remain obsessed about their customers because that is perhaps the only value their business models rest on. They have pared down their core value to this layer and build everything else on top of this. What banks need to worry about is; with this level of customer obsession to compete against; will banks win the battle to own the customer?
Customer obsession and platforms are the building blocks of Fintech thinking; whether done by a Fintech company or by a traditional Financial Institution. The argument for delivering great experiences needs to move beyond ease of use and towards customer obsessed need fulfillment. It is then that the battle for owning the customer will truly begin. Because you never really own the customer; all you have a shot at, is the customer’s mind-share. And that space is getting increasingly cluttered; the right platform can take the customer away leaving all of those points of sales empty.