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Green Shoots of Finovation

Within the US$1+ trillion global professional services industry, the finance sector has recently looked susceptible to a growing chorus of start-ups looking to strategically rethink finance’s core business models and value propositions.  Internet entrepreneurs over the past few years have embarked on a journey to challenge financial services giants in providing consumers with a greater range of choices in money management.

Following in the successful footsteps of the Mint, new emerging leaders – like Wealthfront, LearnVest, Check24 and Wonga (the last three conspicuously backed by Accell Partners) – have helped recalibrate the expectations of “personalised finance” by tailoring their business models, engagement methods and success strategies to specific target socio-demographic, psychographic and cultural niches.

These financial technology firms with a penchant for innovation and continuous improvement are leveraging the power of social networking, user generated content, and collective intelligence to disrupt a traditionally conservative and closed industry. For example peer-to-peer lending (eg Zopa, Prosper, LendingHub) has increased 800% since 2009 and has a default rate of 0.64%, attributed to the fact that people using such facilities feel accountable to each other.   Typically smaller in scale, they are capitalising on the negative publicity created from what Joseph RR Templine has coined the “WebMD Effect” – consumers increasingly moving away from the accepted word of bankers and other professionals and look to self-diagnose their own financial situation. Empowering consumers to think and act independently has been a catalyst for new opportunities in customer lifecycle management – albeit customer acquisition, retention or monetisation.  The excitement around financial technology conferences, like Finovate over the past five years underpin the influence that the financial technology world is having on guiding the financial decisions of consumers.

Consumers of the future will unsurprisingly be looking to access transparent, independent, authentic, reliable procedurally straightforward and value-adding financial services.  The future of professional services will likely involve embracing new Web 2.0 disruptive technologies that facilitate the ability to share ideas and strategies, learn from others, provide ratings and filter for relevant content.

With a plethora of innovations already targeting retail finance consumer, the logical “next wave” for Web 2.0 to tackle would arguably be the corporate finance and professional servcies sector, including working capital management, valuations, budgeting and forecasts, financial modeling, business strategy, restructuring, financial risk management, innovative funding models and improved business decision making.

Regardless of where the future cross-sections between technology and finance intersect, the financial services giants need to leverage their tremendous balance sheet horsepower in order to mobilise their deep human resources to ensure that the themes of community, co-creation, customisation and conversation are flowing constantly through their corporate DNA.

John Persico, will soon be launching Vumero.com, an online marketplace for the world Excel and Financial Modeling freelancing community.

 

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 August, 2011, 10:02Be the first to give this comment the thumbs up 0 likes

Wonga guarantees that the approved loan amount will be credited to the borrower's bank account in 30 minutes. This is better use of FPS than I have seen in any other consumer service including from retail banks. Having said that, with an interest of GBP 45 on a GBP 265 loan for 15 days, its APR works out to over 4000% (Source: http://www.wonga.com/money/how-to-wonga).

There's no better way of saying it, but, if this isn't more exploitative and customer-unfriendly than usury / blackmarketing / loansharking, what is?

With the common man supposedly hunkering down on credit card debt that costs a relatively miniscule double-digit APR %, how many people are likely to use a service like Wonga on a sustained basis with its four-figure APR? Even if they don't realize the huge premium they are paying for speed, convenience and other good things offered by Wonga and others, how long will it be before regulators come down on them especially in the current regulatory environment where banks are seeing single or double digit caps on overdraft fees? Recent developments in countries like USA and India that have already brought parts of the operations of PayPal, Western Union, MoneyGram and others under regulatory scrutiny suggest that the day is not too far off. 

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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