by Michael Stemmle
Over 20 years ago, the media publishing industry started going through a massive change with the widespread consequences we still experience today. It may seem counter-intuitive, but that transformation was not industry-specific; it was about digitalization as opposed to media per se. As such, it serves as a clear portent for the changes happening today in the financial services industry.
Let me take you back.
In the early 2000s, media publishing looked eerily similar to the current financial landscape. Digital publishing was a siloed affair, cross-channel operations were virtually nonexistent, and automation was just emerging as an option.
additiv’s initial development involved building a platform that allowed publishers to create and distribute content across channels. What’s more, we offered this platform as-a-service because it was clear to us that it was just what the industry needed. But it wasn’t the only one.
Soon we started to enhance the platform to serve the financial service industry. Automation and real-time behavioral personalization got the banks excited about additiv.
Part CRM, part measurable publishing engine, our platform combined speed with legal compliance, a major competitive advantage for financial organizations at the time. Additional layers such as predictive data modelling capabilities, real-time segmentation, and next best product probabilities enabled banks to manage the entire customer journey.
But while the digital customer experience unfolded smoothly, there was a roadblock that crashed customer expectations.
Direct access required
When our platform delivered a qualified lead for the financial services industry, the prospective client was sent to a branch for consultation. This fracture in the customer journey revealed a massive opportunity that pushed additiv into the next stage of growth.
We found out there was a huge need to sell to customers directly. (This is blatantly obvious now, but this was almost a decade ago when concepts like FinTech or Bank 2.0 didn’t even exist.)
Looking to serve this need for direct-to-customer financial services, we applied our platform’s personalization and predictive capabilities to credit products. As a result, we became the first real-time credit origination and servicing platform.
This all happened because, 7–8 years ago, we saw that the fundamental shift in the financial service space was going to be like the transformational disruption in the media publishing industry.
Here’s what financial organizations can learn from it to design resilient strategies for growth.
Preparing for breakneck market changes
In Switzerland, the publishing industry ecosystem used to have around 120 independent daily newspapers. Today we have four. This is mainly due to these massive shifts digitization triggers.
This media publishing industry has been undergoing these changes for almost two decades now. We see that Facebook and Google — and now Amazon — continue to carve big parts out of it. The dust hasn’t settled yet.
Although it’s a more diverse and more complex industry, the same structural changes are happening within the financial service industry.
Having experienced and contributed to these transformations firsthand, we are doubly prepared to help our customers capitalize on opportunities such as lower marginal costs to achieve our common goal: democratize wealth management.
To stay relevant, answer these 3 questions
Two fundamental factors influence how financial organizations cope with these displacements.
Mass market retail banking should be wary of the big tech threat. What still prevents a big shift there — for the time being — are regulations. Despite this, tech juggernauts are carving away bits of the value chain everywhere. For example, if financial players rely on Google to facilitate leads, they’re going to have to give it its cut.
Banks that don’t already have a strong relationship with their customers are going to have a very challenging time growing.
At the same time, they also have a huge range of opportunities. It depends on which half of the glass they choose to look at.
2. Product type
Dealing with fundamental shifts in the market also depends on the product type. Because financial products are so diverse, so complex, and so relevant for the whole economy and society, their network effects are unstoppable.
So incumbents should ask themselves three things:
Q1: What is our sustainable competitive advantage?
One of the wrong answers here is “price.”
Customers are realizing that product automation is possible and that it can be done at scale. They’re increasingly resistant to paying the premium prices banks ask for financial products and services. Across the ecosystem, prices are under pressure.
This is even more impactful in wealth management because it’s a relatively undifferentiated product at its core. What financial players can do is use this signal to prepare for the huge disruption that’s already underway.
It happened to media publishing and it’s happening in finance as well.
Q2: Who do we add the most value for: the market or the end customer?
A strategic approach to transformation cannot exist without two factors: finding your audience and interacting with it. That’s a key lesson from the media industry that accurately applies to financial services.
Q3: How do we produce this value?
For the media publishing industry, the m.o. is storytelling. For finance it’s relationships.
We learned from media upheavals that unfolded almost a decade ago that many processes facilitate these relationships. So we’ve integrated them into our platform because they’re vital to financial organizations that want to successfully move forward.
Relationships also need content to thrive. The financial space has been and still is a content-rich industry. From advisory content to investment ideas, we facilitate a lot of content-sharing at additiv.
One way banks can work their way up to differentiation is by leveraging content. They can start with what’s relevant to individual customers in terms of longevity, enabling them to securely transfer assets to the next generations. Moving forward, they can help customers derive intellectual joy out of getting closer to mega-trends, to companies that contribute to remodeling the landscape, and so on.
There are a lot of stories financial organizations can tap into. These stories form the basis for relationships that are essential for moving to the next part, the transactional stage.
The financial service industry = a relationship industry
Across the financial ecosystem, there’s almost a consensus that trust is the value proposition banks can bundle services around. Trust enables them to remain relevant through rapid changes.
From a position of trust, financial service providers can empower customers to get access to everything they need in terms of wealth management. But complexity runs deep in this space, so specific markets have different needs.
For example, emerging markets have distinct value propositions from developed ones.
The value proposition also depends on the segments you address. For instance, ultra-high net worth individuals have more complex requirements than somebody seeking to save $5,000 or $10,000 a year. Then there’s the question of investment goals, pension systems, and local legislation. Opportunities abound.
Because it’s a service industry, in the end, it’s how you combine options and how you advise and service the customer.
At additiv, we focus on an ambitious goal: to create one platform that serves all these value propositions. To achieve it, we focus on the underlying parts, not the differentiating parts.
I am 100% certain that wealth management products and services are going to stay diverse — because it’s a service industry.
Think of McDonald’s example or other fast food and self-service propositions regarding food. The fact they exist and thrive doesn’t mean customers always eat fast food while restaurants die. However, as a restaurant owner, you really have to pinpoint why customers come to you and spend time there, no matter the segment you serve.
It’s the same set of questions wealth managers have to asks themselves:
Why do specific customers spend money with us?
Why don’t they spend it with somebody else?
Who do we want to serve best? What is the strategic segment we target?
What is our value proposition and how do we differentiate?
How do we serve our best customers in a holistic way?
There are 2-meter distance relationships and there are 200-kilometers distance relationships. Our platform allows them to be serviced with an equal level of personalization and customer intimacy.
If clients want to see how their portfolios are performing, they can simulate, calculate, and optimize it to forecast results.
They can work with their wealth manager as if they were in the same room. They can stay in touch 24/7, share ideas, chat, and share documents securely.
It’s important to avoid oversimplifying the digital remodeling of financial services. It’s not just self-service and driving down production costs to zero. It’s about providing a superior service at a lower price. It’s about democratizing access.
For incumbents, this opens up completely new segments and markets. It’s an opportunity to offer products and services at quality than only a few had access to until now. Whether they’re bringing in $1,000 or $10,000,000, the customer’s needs around longevity are the same.
The end of transactional pricing
In a world where transactional costs tend to zero, transactional pricing has an end. Digitization often has multiple costs and this is one of them.
Each industry undergoing this shift experiences massive disruptions around what customers perceive as valuable, around what they’re willing to pay for.
That’s why the value shifts from the transaction itself to the relationships between customers, wealth management services providers, banks, and insurance companies. The transaction is going to be a commodity, similar to electricity.
In this context, additiv is the platform that allows wealth managers to deliver their value proposition and differentiators to their end customers. Our goal is to bring the best network effects to all participants, to bring down overall costs in the industry but drive up intelligence and flexibility.
In a world where competition is moving from industries to arenas, we focus on crafting a new customer relationship with digital wealth management — based on trust, convenience, and value-add.
Relevance — at scale
To capitalize on lower marginal costs to democratize wealth management, understanding the customer’s needs and context is essential. As transaction costs drop to zero (think fully automated robo-advisers), there’s an opportunity to deliver more personalized services.
The hidden benefit of digitalization is it augments the relationship, making it 24/7, to make it richer, more interactive. That doesn’t eliminate automation but it requires it to be even more relevant to the customer.
The good news is you don’t have to be a big player to do so. You just need the right tools.