It’s 9 p.m. at the Stamford, Conn., train station. The overhead sign blinks that my train is 23 minutes late. The prospect of pulling into Philadelphia at midnight to get just a few hours of sleep before my workshop tomorrow morning should have me drained (especially after spending seven hours on my feet today facilitating an innovation session for a New York publisher). But I’m on fire.
The reason for my excitement goes beyond the Red Bull I just downed; it’s because tomorrow I will share a piece of research I conducted about recent innovations in financial services with 200 private wealth managers assembled by Wharton Business School. What I have discovered over the past few months is that while my big-bank friends sit back complaining about a lack of innovation in financial services—"everything is regulated," "competitors copy too fast"—a new generation of outthinkers is busy dismantling nearly every dimension of the sector and introducing a new order of things.
Position is about who you target and how they perceive your brand. We see banks like HDFC in India now dominating a client no one else thought to pursue: the farmer. Their Kisan Gold Card (Kisan means "farmer") helps farmers across the country pay for agriculture-related expenses, access credit and write checks, and it even gives them personal accident insurance. Why farmers? Because competitors are not focused on such niche segments.
Who can you target that your competitors are ignoring?
Product (and service) is what you sell, your features, your benefits. My favorite product innovation by far is that of SecondMarket, which has become the destination for investors who recognize there is little systematic opportunity in publicly traded stocks, bonds, or mutual funds, and more in alternative assets. By alternative I don’t mean private equity (which is now mainstream), I mean truly alternative. Every month they introduce new funds that focus on things like peer-to-peer loans, farmland, and investment-grade wine and fine art, each managed by fund managers with deep relevant expertise.
What product can you create out of nothing?
Price is not how much you charge but how you charge. Consider Progressive Insurance, which last year introduced "Snapshot," a little device you put into your car to get a more carefully tailored insurance rate. While competitors base their rate on obvious factors—your age, make of car, etc.—Progressive can now price on factors such as miles you drive and the number of times you break hard or accelerate fast. The result should be more accurate prices and so fewer unprofitable customers.
How can you adopt a new basis of pricing?
Place is simply a trick to make "distribution" start with a "P." It defines how you deliver your product or service to your customers. Grameen Bank, the microfinance pioneer, services its customers with mobile bankers, young workers who literally walk from hut to hut in villages in Bangladesh. BancVue is taking perks typically only affordable to large institutions—like high interest savings accounts, ATM-free reimbursements, online banking and proprietary credit cards—but instead of delivering them directly to customers they offer them though small community banks and credit unions. Their mission is to help small banks compete against the goliaths.
How else could you distribute your service?
Promotion has to do with how you communicate with, capture, and retain customers. Today Yodlee recognizes that offering online personal financial services is a critical market tool, so it provides the backend to that platform that enables 85% of all such services for banks and other financial institutions.
How can you communicate differently than the competition?
There are enormous opportunities to rethink the processes underpinning financial services. Consider iGate, which challenged the long-held belief that the attractiveness of a loan depends on the features the lender offers. They recognized, as you probably do intuitively, that we rarely make the time to read through those terms and conditions tomes. Instead we want to choose the lender who approves us first. So iGate redesigned the process by which its bank clients processed loan applications, cutting the approval time to 17 days from 40. The result? The pull-through rate (percent of customers who accept a loan proposal) soared to 75% from just 42%. By automating how insurance claims were processed, iGate was similarly able to cut the average cost to $1,000 per claim from the industry standard of $2,500.
What core process could you re-engineer?
Physical experience speaks to what your customers see, hear, smell, taste, or feel when they receive your service. We are witnessing fascinating changes in the environments in which financial services companies are enveloping their offerings. Last year we saw the launch of a fascinating experiment called the Mango Store, a bank designed exclusively for the unbanked. Meant to take on predatory check cashing services, the Mango Store is bright, orange, welcoming, and entirely automated.
How can you transform what your customer senses?
People has to do with how you recruit, train, incent, and organize your workforce. Commerce Bank, for example, focuses almost exclusively on people with the right "attitude." They look at whether you smile in a resting position, for example, and care less about your "aptitude." Well-designed processes and training can take care of that.
How can you challenge who your industry recruits and how you develop them?
As always, the real innovators in this space are attacking from the periphery while the big incumbents focus inwardly in maintaining the status quo. But add their innovations together and you begin to get a picture of radical new advances in financial services.
Next week, I’ll share the "playbook" my research says will lead to new financial service innovations.
[Image: Flickr user Martino]