December 14, 2016

Financial Services — between industries or lost in an ecosystem?

Mikko Helin

Director of Business Development, Tieto Financial Services

Industry barriers are increasingly fading away, and established industry players have gone into new areas. No longer can one company alone provide the experience consumers expect, which has led to the emergence of business ecosystems. Companies in the financial services sector have great potential for gaining strong positions in their ecosystems — but first they need to capture a bigger slice of each customer’s life, or they risk losing their current business to other companies that will.

As new disruptive players, free-of-charge digital services and increasing competition erodes customer bases and revenues, many financial and insurance companies are carefully considering their strategies going forward.

Traditional industry leaders are weakening and merging with others. We have already seen multiple initiatives in which retailers have established their own banking businesses. Some of them have even leapfrogged to insurance as well. A great example of this is the Swedish retailer ICA, which launched its own insurance business in 2015. Meanwhile, insurance companies have moved very close to private healthcare, going so far as to develop their own hospital chain like OP has done in Finland. Inevitably, companies are moving into new domains to fight for the attention of customers and new revenue sources.

One of the most topical approaches for adapting to these new circumstances is Ecosystem Thinking — this means partnering with other companies to innovate and create premium customer value. Across the Nordics, we see plenty of strategic movement towards building ecosystems, and it is even crossing the borders of traditional industries. 

What to consider when entering the world of ecosystems

Functional ecosystems are not easy to create, as they require multiple players to move in the same direction at the same time. If that coordination does not happen, then a reverse domino effect can occur, in which no company is leading the way — with chaotic results. However, financial service providers should certainly explore ecosystems, or they risk losing their current business to another provider that will.

When planning for your role within an ecosystem or network, some fundamental questions must be answered:

1.   Who is the leader of the ecosystem? Is it me or shall I find my role in an ecosystem set up by someone else?

2.   What is my revenue logic? How, when and from whom will I earn my future revenues? Will I win the customer’s heart (i.e. account) or do I need to stay behind another player that has a firmer grip on regular customer interactions?

3.   How do I justify my existence as part of the ecosystem? What can I bring to the table so that the other ecosystem actors feel I am essential? 

Financial services need to capture a bigger slice of the customer’s life

Companies in the financial services domain have good potential for establishing strong positions in ecosystems. Simply put, we are important to broad masses of customers. We handle daily money flows, we optimize personal savings and pensions, and we even insure all the physical belongings of individuals — including their health and lives. What could possibly be more compelling?

However, domains like media, entertainment, retail (i.e. supermarkets) and telecom easily outperform financial services in emotional appeal and intimacy. This leads to a frightening question — should financial services find new roles in the background, delivering their offerings through partnered media or retail companies?

Hopefully not. 

But to avoid such a disturbing scenario, financial service providers must establish a better and more holistic grip on their customers. We need to develop new ways to capture a bigger slice of each customer’s life, rather than just providing stand-alone home loans or car insurance policies. Our industry sits on top of a great abundance of critical customer insight and several unavoidable moments of truth. Perhaps bundling the very fundamental areas of life into one source of value — including money, savings, belongings, health, safety and life — itself would fit the bill. If these holistic offerings do not crystallize as a compelling value proposition for the customer, then what will?

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