The high rate of technology penetration is affecting the state of financial services:
- Collaboration economy – driven by social media
- On the go behavior – driven by intensive lifestyles and the rise of mobile technology
- Convenience seeking – driven by connectivity (“the internet of things” and wearable technology)
Time spent on social networking by internet users worldwide is on the rise, causing more sharing and peer to peer behaviors resulting in the “collaboration economy”.
Global Mobile penetration continues to rise, giving birth to more on the go/ mobile financial solutions. Rising penetration of Wearable Technology offers opportunities for companies.
In the EU, online banking adoption rates are 49% in the EU, and in other countries, USA included, penetration surpassed 50%.
We expect Mobile financial services to grow at an accelerated rate, due to the increase in solutions offered through mobile devices as well as younger demographics demand for ultra-convenient solutions. According to the Federal Reserve, in the USA, use of mobile banking continues to rise but is yet to reach the rates of online banking: 43% of all mobile phone owners, and 53% of all smartphone owners with a bank account, had used mobile banking in the 12 months prior to the survey, compared to 71% who used online banking on a desktop, laptop or tablet computer in the same period.
Established competitors, as well as emerging competitors, use a mix of strategies to maintain competitive advantage in the financial services field, including adoption of new technologies (using enabling startups), innovation labs (to provide access to trend setting technologies) and M&As (of disruptive startups).
The main challenge in mobile financial services is keeping them simple and intuitive, as financial services can be complex.
While existing competitors need to adopt more slowly, developing channel after channel, fintech startups are concentrating on entirely digital solutions, thus designing cutting-edge solutions which in turn, create new consumer expectations.
Competitors offer innovation based on the Internet of Things (IoT) and wearable technology. For example, in 2016 Intelligent Environments launched an IoT banking platform through which smart devices such as a thermostat can be connected to the user’s bank account and maximum spending for bills can be set, monitored and notified.
Visa unveiled a new payment enables sunglasses prototype which enables consumers to tap the sunglasses on enabled payment terminal in order to make a payment.
Apple Pay, Samsung Pay, and Android Pay are the largest competitors in the digital wallet market, with 150 million users together. According to a recent report by Juniper Research, Apple leads the digital wallet market and is expected to nearly double Apple Pay user base in 2017. The study estimates that Apple Pay will hit 86 million users in 2017 globally, up from 45 million in 2016.
Payment apps and "on-the-go" payments experience growth as well. Venmo, US Millennials’ popular payment app, owned by PayPal, processed $17.6 billion in 2016 in mobile payments, up 135% from the prior year.
Another segment which sees innovation is of cardless transactions.
According to a 2015 FDIC report, “Cash” customers who don’t have a bank account or a debit card, account for 27% of American consumers.
Amazon, for example, launched Amazon Cash in April 2017, a new service that allows consumers to add cash to their Amazon.com balance by showing a barcode at a participating retailer, then having the cash applied immediately to their online Amazon account. The service will support adding any amount between $15 and $500 in a single transaction.
Innovations also take advantage of social media, offering transactions through Facebook Messenger, banking social media platforms and more.
Artificial Intelligence (AI)
Chatbots have become a common tool in the financial field, allowing consumers handle routine transactions and receive a financial advice in the form of human interaction. Users can check their balance, transfer money, ask questions and more.
Mastercard KAI is a messaging platform that allows customers to receive financial information and make decisions in the form of virtual assistants.
Another strategy intended to win customers is of rewards, points and cash back - all are added value strategies that help to differentiate competitors in the financial sector. Increasingly, they are also used by non-financial competitors.
Peer to Peer Lending (P2P lending)
As part of the Collaboration economy, P2P lending constitutes a major industry, and traditional competitors have been responding via partnering / acquiring / investing in competitors. The leading competitors are Lending Club (with over $20 billion in loan issuance, offering both consumer and small- and medium-sized enterprise loans), and Prosper (over $6 billion in loans, offers only unsecured consumer loans and does not make SME loans).
Some companies have identified the problem of low/ lacking credit score, offering “potential based” loans.
Complex products and services are being disentangled by 3rd party websites. Therefore, navigating between different companies’ solutions will become easier, and we expect that companies will build specialties for specific market segments rather than a “one size fits all” attitude.
Digital ATMs and Branches
A number of banks launched cardless ATMs, to enable customers cash withdrawals from an ATM by tapping their device when they’re in front of the ATM.
Bank of America, for example, launched ATMs which feature withdrawals using a smartphone. The company has opened three completely automated branches in Feb. 2017, where customers can use ATMs and have video conferences with employees at other branches.
Small Business Services
Fintech competitors have entered the field of small business financial management, replacing services outsourced to HR and CPAs personnel. One example is Zoho Invoice, web-based invoicing software that helps users create invoices, automatically send payment reminders and get paid faster online. Another is Paycor which focuses on HR solutions starting with recruiting and over with time and attendance tracking and payrolls.
How to Utilize Digital for Growth?
Financial Services brands must provide the following advantages in order to attract new clients and cross-sell new services to new clients:
- Building Trust through Personal connection (utilizing social platforms), content ownership / expertise (utilizing blogs, micro sites etc.) and targeting niches, through transparency.
- Offering Convenience. On time / on place (utilizing mobile devices). Self-service (utilizing mobile, online and tablet).
- Providing Personalization. Online / mobile customizable tools, device-specific presentation (such as tablets).
- Offering Simplicity. The industry is perceived as complicated and confusing. Digital channels are enabling new strategies such as gamification and simple analysis tools.
Time for AI
- Our 2014 report found that convenience, as well as simplicity, were the key growth drivers for the industry, in terms of customer benefit: time saving, schlepping-free transactions, etc.; next in line were money saving and personalization. And indeed, key competitors focused on delivering more convenience through omni-channel tools, with a specific focus on mobile devices.
- The 2015-2016 reports identified personalization as the key driver for today’s companies, as a result of the use of Big Data, the rise of Internet of Things (including wearable devices, smart homes and smart cars); and the growing competition from new industry disruptors, forcing companies to a deeper understanding of micro-clusters needs, or a “mix and match” between products and services.
- In 2017, the advance in IoT, including smart home (e.g. Amazon’s Echo/ Alexa), as well as artificial intelligence (AI) will create opportunities for seamless transactions, and we expect rewards to make a “come back” with better value offers, as a point of differentiation.