At least two dozen accelerators and incubators have been launched by financial services firms in the last two years. I believe that in five years’ time, most of these corporate accelerators will have disappeared. Why? A fully-fledged, multi-startup accelerator is expensive to run. The cost of searching, selecting, and providing seed investment and support for startups could easily reach $1 million a year. Many accelerators aren’t focused enough on customer problems or business objectives to deliver return on that investment.
So why are so many banks, insurance, and wealth management firms eager to loosen their purse-strings? Some want to identify and co-opt future disruptors, others are looking to startups for innovation. There’s been a palpable change of tone in discussions of digital disruptors in retail financial services. The ubiquitous stories about voracious startups that want to eat incumbents’ lunch have been replaced by tales of successful collaboration. Financial technology startups deliver innovation, established firms bring customers, and together they live happily ever after.
In 2013 NatWest led the way. Last year Barclays overtook having introduced a range of new app functionality, including being the first in the UK to introduce a digital vault (Barclays Cloud It). And now in our latest report we found Lloyds Bank to have jumped ahead of them both.
Forrester’s 2015 UK Mobile Banking Functionality Benchmark was published yesterday and reveals our insights around the state of the UK mobile banking, based on reviews of Barclays, HSBC, Lloyds Bank, Nationwide Building Society, and NatWest.
Lloyds Bank has pulled ahead of its peers with more extensive account management and transactional features. It remains the only bank in the UK which we reviewed that lets customers add a new payee directly in the app. If I’m out and about and need to pay back my friend for some tickets, I don’t want to have to wait until I get home to add a new payee through my online banking (yes, yes I know…we could use Paym to make a P2P payment but for the sake of this argument, let’s say these are very expensive tickets). I want to be able to add a new payee and send the money then and there - in my mobile moment.
Lloyds Bank is also making strides through its Everyday Offers. By partnering with Cardlytics, the Lloyds Bank app presents customers with relevant cash-back offers based on their past transaction history.
That’s not to say that the other banks are not doing great things. One of my favorite features is Nationwide’s Quick Balance, which lets customers view their account balance in just one click and without the need to login.
Have you ever sent money abroad and been shocked by the amount the recipient is left with? Why can’t you ever get anything close to the exchange rates advertised on the likes of xe.com?
As a customer, transferring money internationally is often a costly experience. Despite claims of no fees, the exchange rate spreads are often significant. That’s where P2P currency exchange comes in.
Startups such as CurrencyFair, Kantox, Midpoint and TransferWise hope to solve this problem by using the power of peer-to-peer networks to match customers, both individuals and small business, with one another to significantly reduce the cost of currency exchange.
By matching currency orders travelling in opposite directions, these platforms remove the need for money ever having to cross borders, thus avoiding costly international transfer fees. Thanks to low overheads, they also offer exchange rates at (or very close to) the midmarket rate that you see on xe.com. As you can see from Midpoint’s calculator below, the savings can be substantial.
If you’re interested in finding out more about this emerging sector - one that has been backed by the likes of Peter Thiel, Richard Branson, and Andreessen Horowitz - you can read mine and Oliwia’s new report here. The report, the latest in our ongoing series about digital disruption in retail financial services, answers the following questions:
Spring is finally here, and with that, a time for wild animals to emerge from their winter sleep. We humans don’t really hibernate, but we can find it difficult to get out of bed to face a rather frosty environment. This applies to companies, too.
As we researched our new report about trends in European digital insurance, it became clear that no one is really disputing the value of direct insurance. European insurers have suffered seven lean years, as premiums in property, casualty, and life insurance largely stagnated. Direct sales have often been an area that continued to deliver growth. Because of this, we expect most European insurers to step up their investments and efforts in this area.
Having just watched 72 demos at FinovateEurope, I can confirm that digital financial innovation is alive and kicking. Over the last couple of days, I have seen a number of inspiring solutions to deal with some of the most difficult problems facing financial services today. The main themes at Finovate this year included simplifying and lowering the cost of payments, improving authentication and customer onboarding, using data to generate new value for personal and business bank customers, and making bankers more productive and efficient through, for example, artificial intelligence technology.
Digital executives at financial firms are taking note – the audience was packed with executives from Europe’s main banks. And rightly so. To be innovative, banking executives need ideas, data, technology, software development skills, design experience, and change management support. Often, they can't source these components internally in a timely and cost-effective manner. Partners such as innovation agencies, systems integrators, startups, adjacent firms, and even competitors can help them add capabilities quickly. This is prompting the rise of ecosystems of value – a key feature of digital business transformation. By utilizing partners' digital assets, ecosystem participants are able to hone their products and services fast and furiously — in essence, out-innovating the competition.
Over the past year, we’ve told banks that some of them would become custodians. We’ve told insurers that many of them would be forced to specialise. We’ve told wealth management firms that many would shrink. We’ve done this to show them how digital disruption could savage retail financial services, just as it has done with the music and publishing industries.
But we don’t want to be just the bearers of bad news: We want to help you deal with new players like peer-to-peer lending platforms and even Google entering retail financial services. And to be fair, it’s not all bad news. There are plenty of companies out there using digital innovation to meet their customers’ financial needs in new and better ways. Take for example BBVA which has brought its customers the virtual assistant Lola, video banking, and the crowdfunding platform called Suma. And BBVA hasn’t stopped here. The Bank is currently running the sixth edition of its Open Talent competition for start-ups most likely to affect financial services.
"When will Google launch a bank and what will it look like?" is a question I frequently hear from our banking clients. Google’s activities in digital wallets and payments, as well as its reputation as one of the most disruptive firms in the market, have obviously left many banking executives worried. Unfortunately, they’re asking the wrong question.
I’ll leave aside the issue of whether Google or perhaps Apple or Amazon should be the focus of this increased attention. Each of these players has its unique strengths and growth plans, and some of these correlate more or less closely with financial services. That’s not what makes the question so wrong. As I write in my new report, it’s the assumptions that are faulty here; assumptions that reveal precisely the type of legacy mindset that makes many retail banks so vulnerable to disruption.
Many retail financial firms still haven’t grasped the full potential of digital disruption. They think that new competitors will use their digital might to beat them at their own game, be that through more efficient processes, brilliant algorithms or better user experience. While these three things do matter, what matters most is the purpose which they serve. As I have written elsewhere, digital disruptors like Google are disruptive because they don’t play by the rules. Instead, they use digital technologies to deliver better or entirely new ways of meeting customer needs, often bypassing regulation and re-defining a given industry in the process.
Not a day passes without more millions pouring into start-ups bent on disrupting retail financial services. Yesterday it was the payments start-up Zooz with US$12 million, today it’s the peer-to-peer lending platform Funding Circle with US$65 million. Venture capitalists have obviously sniffed an opportunity in an industry characterized by high margins, underserved customers, and accumulated inefficiencies.
The economics of start-ups are ruthless, and you shouldn’t expect many of these upstarts to survive or expand beyond their narrow niche. Still, don’t miss the wood for the trees. As my colleague Bill Doyle and I write in our new report on digital disruption hitting retail financial services, conditions are now ripe for financial services to join the music and publishing industries in experiencing the power of the digital punch.
Have you ever had the pleasure of making the acquaintance of Maxwell the Pig? Maxwell is a likeable if slightly assuming animated pig. At times he can be a bit dismissive of those who aren’t as digitally savvy as he is.
Even if you don’t know Maxwell, perhaps you know other such celebrities? I thought not. That’s because there aren’t many companies that are willing to advertise their mobile insurance services as proudly as Geico is doing. For my new report, I surveyed the mobile offerings of more than 30 insurance companies in developed economies. The results clearly show that plenty remains to be done, both in terms of customer adoption and what’s on offer.
The big US insurers such as Geico and Progressive are leading the pack, offering a growing range of mobile functionality that lets customers get quotes, file and track claims, locate a repair shop, pay bills, and save documents simply by taking pictures with their smartphones. Offering functionality that makes it easy for customers to achieve their insurance-related aims seems like the basics, but a lot of companies still haven’t got it right.
Social lending, or peer-to-peer (P2P) lending, is not even ten yet, but it has caused a great deal of commotion already. Consumers, regulators, and banks continue to be perplexed by a business model which is so emblematic of the digital economy, or of digital disruption. Thanks to digital tools, potential lenders and borrowers can interact with each other online without the involvement of banks, credit unions, and other traditional financial institutions. And nothing epitomizes the confusion about how banks should respond to the phenomenon better than the initial ban of Wells Fargo on its employees investing in P2P loans, lifted only a few months down the line. So is P2P lending a threat to banks or not? We think it is.
Forrester first wrote about peer-to-peer lending in 2006, soon after the launch of the first P2P lending marketplace Zopa. We argued that lending would never be quite the same again and indeed, it hasn’t been. As we write in our new report, a lot has happened in those eight years: