The following is a guest article by Ana Valenzuela, Professor of Marketing, Baruch College, CUNY
Insights from “Defining Tomorrow: Lessons in Disruption”
One of the main reasons that fintech disruptors are rising so quickly is that these companies have been able to identify and serve the needs of customers that are underserved by the traditional banking industry. This was the key focus of Baruch’s recent conference, “Defining Tomorrow: Lessons in Disruption,” held in partnership with Interbrand, Ready Set Rocket, and the New York Stock Exchange. During our first panel, leaders of some of the most notable disruptors in the industry talked about how they’ve been able to identify opportunities and scale their operations to meet these needs, while building a strong brand in the marketplace.
Some key themes emerged from this powerful panel on uncovering unmet customer needs:
Fintech has been built around the idea that technology would become the enabler of solutions for customers’ unsolved needs or salient pain points. However, scale only comes from continued customer centricity. Phil DeGisi, CMO of the student lending startup, CommonBond, talked about true customer-centricity as being constantly in touch with people, wherever they are. Technology enables the faster collection of real customer feedback, and then allows for the desired product or service to be delivered to the customer in an extremely timely fashion. The key is to first understand what a customer wants, and then immediately respond back. The core strategy: competing on experience over cost, while building scale.
Enhanced customer experience
In fintech, best-in-class customer experience is defined by a different benchmark. Best-in-class is not ruled by what the incumbents offer. As DeGisi pointed out, financial companies should aspire to the kind of experiences delivered by successful breakthroughs across industries, like Uber and Amazon. The new benchmark is a seamless, mobile-first experience, using digital platforms to coordinate information access for a faster process.
There is, however a caveat: Research has clearly shown that fast decision-making is not always good when there are long-term consequences—a key consideration for companies dealing with people’s finances. Ease can be mistaken for appropriateness and, as we know, individual welfare is strongly affected by inappropriate household financial decisions, whether large or small.
These decisions can have an impact on individual assets, such as one’s credit score, which goes with you for the long-term. Gina Harman, CMO of Accion, a non-profit dedicated to providing quality financial services to everyone, pointed out that financial services firms can encounter situations in which customers in crisis are trying to make decisions. For example, a small business owner needing money immediately, and motivated by an instantaneous response, may not be able to think about sound, long-term implications of his or her decision.
But technology isn’t all about convenience—it also has the power to uncover predictive patterns that can guide better decision-making. For example, one practice being extensively used today is harnessing data science to create customer scorecards. Rohit Aurora, CEO of the online marketplace Biz2Credit, explained how this information can be shared with customers in order to educate them on the drivers of their scores, and how they can nurture it by making more informed decisions.
Predictive analytics driving best-in-class
In fintech, predictive analytics is what drives innovation. Disruption becomes about using technology to empower customers. But for Kevin Young, CEO of the advanced analytics startup Custora, the ultimate challenge is to step forward and move into prescriptive analytics. The goal is to optimize the customer experience throughout their lifetimes and maximize value through the understanding different drivers.
Predictive analytics has also become a best-in-class practice when it comes to flagging customers for compliance. Predictive patterns used to generate score cards help underwriters minimize human error. For example, Accion and its partners have been able to harness cellphone balance replenishment as a credit proxy in Africa, where inidividuals’ credit history is non-existent or not readily available. At Biz2Credit, analysts are able to look at the type of expense being addressed when receiving a small business loan. Whether that expense is payroll, marketing, etc., may be used to predict survival rates.
However, data doesn’t tell the full story. The big challenge is predicting behavior without being actually proximate to the people you’re looking at. In some cases, drones have been used to take pictures of locations and assets in order to build a more holistic picture of the customer’s world.
From baby boomers to millennials
Building scale means being available where and when individuals want you. In terms of reaching millennials, it is clear that mobile is first. However, different customers prefer to interact with brands at different times and through different channels. For example, millennials may look to live chat for quick customer service, while other customers want to hear a voice on the telephone. Likewise, Custora’s data has shown that different generations have unique expectations in terms of type of communication. The best practice in this respect is to make sure to cater to a full range of expectations, and maintain consistency across all channels.
While millennials have been characterized by their desire for instant gratification, this may not be the the best driver of sound, long-term decisions. Fintech companies are challenged to deliver fast and seamless experiences, coupled with deep customer understanding and a focus on engagement.
Education for better decision-making
There are many customer needs in finance that are still far from met. As Accion affirms, there is ample room for the industry to evolve towards a more inclusive economy. Second, with a focus on people struggling with household finances, fintech could explore interventions that help customers strike the right balance between spending and saving vs. accumulating debt.
Predictive analytics could provide answers to important questions like: How does the timing of income and expenses affect debt accumulation? How does income inequality affect patterns of spending and debt? How do attempts to provide relief for struggling mortgage-borrowers affect repayment behavior? How much of savings vs. debt accumulation can be traced to stable individual differences, and how much to temporary circumstances?
Analytics can also offer insights into the financial behaviors of households that are not so acutely distressed, revealing how customers react to hidden costs of products and financial services and how spending and saving change over the lifecycle. These insights can also be used to guide personal stock market investing and build better choice architectures that help people make more informed decisions around financial products. All of this can become part of the rapid shift that fintech is driving in the financial sector—a shift towards expontentially better experiences.
Fintech is opening up new opportunities which are born from customer-centricity that is delivered in a responsible way. While much has been brought to light, there are many yet-uncovered customer needs and predictive capabilities to unveil that will pave new roads to success for financial companies.
For more insights, read “Leveraging Digital Disruption in Financial Services” by Alex Lirtsman, founding partner and chief strategist of Ready Set Rocket