Being purpose-led and ecosystem-driven is fundamentally transforming the way institutions in the financial sector function. But it is easier said and declared than done. Using six selective examples of recent innovative offerings, we explore what the shift
means for financial institutions, the challenges they face and key considerations in becoming purpose-led and ecosystem-driven.
What does purpose-led even mean?
The term “purpose-led” has become a prominent catch-word for business organizations globally for a good reason: Business brands recognized for high commitment to purpose have grown at more than twice the rate of others (according to Kantar BrandZ Study).
However, it is “purpose-doing” which differentiates the leaders from the multitudes of “purpose-saying” businesses (only 1 in 10 business leaders have an organization wide actionable-plan on becoming purpose-driven).
The focus and challenge of being “purpose-led” is even more acute in Financial Services. While purpose is generally understood to be an emphasis on overall positive impact on consumers, society, and environment, rather than just a financial one, its applicability
in Financial Services is rather tricky – Financial Services have always been about making a positive impact for customers through financial outcomes. The question for Financial Service firms then becomes “what and how do financial outcomes have a positive
impact for their customers”. Does this imply helping customers achieve a financial outcome conveniently? Or does this imply helping customers use financial outcomes for a positive impact in their lives, the society and environment? Interestingly, many (if
not most) of the digital-transformation initiatives seem have focused on the former while wishing for the latter.
Arguably, all financial products, without exception, have a financial outcome at the core of their design. How then can the “positive impact” of products be even imagined? What differentiates a Financial Service with positive impact from another financial
service with just a financial outcome? Is there a way to assess the “positive impact” of a financial service?
For reasons of brevity, we restrict such exploration of positive impact to the impact in their customers’ lives. The topic of positive impact on wider society and environment is a topic reserved for another blog!
Let us look at a few (selective) examples of innovative offerings in Financial Services in the recent past:
SinoPac flexible mortgage loan repayments
- Financial Outcome: Financing a house
- What’s new: allows homeowners to adjust the amount of their monthly mortgage payments as needed
Apple Card – Goldman Sachs Apple Collaboration
- Financial Outcome: Payment for a (consumption) purchase
- What’s new: By seamlessly linking digital payments with rewards and loyalty, the tech giant is answering consumer demand for more universal and integrated ways to spend and save, with analytics and insights through optimized data to help with budgeting
John Hancock Vitality Program with Apple Watch
- Financial Outcome: Insuring against negative impact of health situation
- What’s new: First insurance company to offer discounts for healthy habits
TransferWise (now called Wise) Payment Transfer Service
- Financial Outcome: Money transfer for use in a different geographical zone
- What’s new: Disruptive money transfer service with a two-sided marketplace business model
Robinhood zero commission trading
- Financial Outcome: Investment for financial wealth/goal
- What’s new: Free trading ethos turned the online brokerage industry on its head
WealthFront Portfolio Line of Credit
- Financial Outcome: Short term liquidity using financial assets
- What’s new: Access cash quickly, easily while staying focused on long term goals
Each of these innovative offerings have reimagined how financial services can be tailored and aligned closely to consumer needs, specifically on how products can designed/tweaked to create a positive impact. Three in the above list involve traditional players
(SinoPac, Goldman Sachs, John Hancock) and the other three involve newer entrants (Wise, Robinhood, WealthFront). This variety is deliberate – to help understand the implications of innovations from the lens of both traditional players as well as newer entrants
in the financial services landscape.
What does the purpose-led paradigm mean in a product-centric financial services world?
An ecosystem view highlighting value spaces beyond banking has been analyzed recently. We attempt to build further on such analysis through specific emphasis on both the specific themes guiding such value spaces as well as key metrics that can help measure
progress towards such ambitions.
Financial services firms operate today in a predominantly product-driven engagement (across banking, investment and insurance products) with their customers. Indeed, a product-driven engagement has many advantages for a financial services firm, in terms
of contractual simplicity and consistency across the customer base. Financial products act as a (loose) proxy for real needs of consumers/businesses. Nevertheless, they necessitate several mental switches that their customers have to manage to fulfill their
underlying needs. For example, in consumer shopping, customers have to make the mental switch from the shopping context to the payment context and back. In Investments, customers have to make the mental switch from the purpose of the investment (e.g., education
etc) to the financial structure of the investment. Being purpose-led implies that financial services firms recognize such switches that their customers have to manage, and ease/mitigate such inconvenience.
In a next blog, we explore what these examples mean from a consumer (customer) perspective and the financial services provider perspective.