For too long, financial players have focused on simply selling better products or services than their competitors. This approach fails to acknowledge the unique and multifarious needs of individual customers.

With the xTech revolution and the emergence of embedded finance, boundaries between industries – and sometimes competitors – are beginning to blur. As such, traditional sales models need to be adjusted, and business-to-consumer (B2C) players need to consider working together, to ensure the needs of all customers are served holistically.

Thanks to application programming interface (API) technology, financial players can now deliver their services to end-customers via non-financial channels. For instance, firms such as Uber and Lyft allow customers to execute transactions within their application itself; Klarna and AfterPay let shoppers to break down online purchases into monthly installments; and Tesla provides insurance options at the point of sale.

While this does represent progress from the end-user’s perspective, firms can go even further to enrich the experience. What if, for example, a consumer is preparing to travel abroad and needs to complete many jobs, such as purchase plane tickets, insurance, accommodation, and retail essentials? Could the xTech and financial services ecosystem be constructed in such a way as to ensure the consumer need only enter one door to get all of these?

This concept – or the ‘circle of experience’ – sees industries and organisations modernise their business models, connect further, and maximise value for consumers by streamlining the journey. But how can this be achieved technologically, and how should firms look to enlarge their circle of experience, today?

The circle of experience in practice

In an interview with Finextra, Rishikesh Deole, head of digital, banking financial services and insurance Europe, TCS, explained that the idea of the circle of experience is “around addressing the holistic needs of consumers.”

When a consumer comes to bank for a mortgage, for example, they will likely have undertaken several other steps to get to that point, such as researching where to buy, comparing prices, sourcing home insurance quotes, and so on. Typically, banks only provide a small number of these services – the consumer orchestrates the rest.

“The circle of experience concept, however, sees banks reassess their offering, and consider which providers in their ecosystem they could collaborate with to deliver a more thorough customer experience,” stated Deole.

Carita Weiss, chief product officer, Swedbank, echoed the sentiment: “The circle of experience takes the traditional idea of the marketplace and makes it virtual. It is the idea that a customer can get all she needs through one door, online. It’s gradually happening in all areas.”

“Having a middleman or broker between the buyer of a house and the lender will become increasingly common,” continued Weiss. “The model is underway in the UK but in Sweden exists to a lesser extent. Thanks to the xTech revolution, the middleman may be able to help buyers execute countless jobs, such as mortgage comparisons, interest rate research, contents insurance, and so on. All of this could be digitally embedded more seamlessly.”  

According to Carlo Panella, head of direct banking, illimity, “value is created by choosing and integrating solutions that can change the way companies use banking and services. The benefit is that more customer loyalty can be created.

“Circle of experience develops partnerships that can creating unique experiences. This loyalty brings increasing revenue over time, shifting the axis of attention from an economic relationship to one of content,” Panella said.

To achieve this holistic experience a union between banks, insurtechs, fintechs and other xTechs will be necessary.

Improving the ‘index’

TCS’s Deole refers to a “circle of experience index”, which describes the percentage of required jobs that can be completed by end-users through a single point of entry.

Returning to the ‘holiday-buying experience’ example, if only plane tickets could be purchased from one site, that would receive a low circle of experience index. If, however, all the required services and products could be collected by a consumer from a single portal, this would receive a 100% circle of experience index.

To drive up the circle of experience index, it follows that banks must either add new services from within, or partner with other providers in the ecosystem. Which strategy a financial institution takes will be decided by factors such as customer ownership, the cost-to-value ratio, time to market, regulations, and so on.

“Banks must decide what their ideal circle of experience index needs to be – based on what is achievable and practical,” advised Deole. “It may be 60%, it may be 80%, but the idea is that a target is set, and you get a structured view of where you want to go, and which services you need to absorb.”

What’s in it for the banks?

From a customer’s perspective, the benefits of being able to access all the necessary financial products and services via a single doorway is clear. But what about from the bank’s perspective? What makes the undertaking worth it?

“There are multiple benefits of the circle of experience for banks,” claimed Deole. “First, they are improving the overall experience, net promoter score and customer trust in the brand. Second, they are reducing churn – it's hard for the customers to walk away from a 360-degree service. And third, banks get to retain all the rich intelligence that is gathered on customers. This may include behavioral patterns, spending habits – all of which can be used to further tailor the experience.”

The data captured will also ensure financial players select the best firms in their ecosystem to partner with. This means delivering the right services, at the right prices, to their customer base.

Building a circle of experience

Benefits considered, how should financial institutions go about constructing a circle of experience, technologically? What is required is erection of what Deole calls a “digital house”, which is anchored by five ‘platforms’.

“First, you have the ‘connected customer’ platform, which basically helps you achieve a 360-degree view of your customer. Then, you have a ‘connected things’ platform, which gets you all the sensor data from your connected car; connected home; connected facilities, and so on. Third is the ‘connected partner’ platform, which helps you set up an interface with your partner’s ecosystem, in terms of sourcing the data from them and sharing the intelligence with them. Fourth, the Connected Enterprise Platform, which gets the holistic view within the enterprise across the departmental silos. Last comes the ‘connected intelligence’ platform, which collects data from all these platforms, derives actionable intelligence from them, and pushes it back to the other platforms to customise the overall service.”

This system is powered by cloud technology and can deliver a seamless, embedded, and complete customer service: “At this high level, a digital house is what every financial organisation should be focusing on,” argued Deole.

Panella believes that “a circle of experience can be constructed starting from two points of views: the first one from technology; and the second one from the processes. One usually starts with processes and technology follows. It essentially consists of thinking about processes in a new way by reviewing the end to end, considering what customers need to do, when they are involved in giving information and receiving it, etc. The role of technology is to make the transition from bank to partner and vice versa seamless, not only to replicate the experience from the point of view of integration but replicating the data and service processes, which are the most important.”

Some challenges

Of course, erecting a digital house is far from a simple undertaking – it’s the reason few banks have done it. Interestingly, however, it is not just technology that is the barrier to innovation.

According to Weiss, while building a cutting-edge digital house around legacy infrastructure is a challenge, one of the biggest speed bumps is a matter of prioritisation. For the past several years, issues of compliance have risen to the top of incumbents’ agendas, pushing customer journey innovations to the bottom.

“Recent compliance challenges have meant the cultural impetus around building out circles of experience has been relatively weak within many traditional banks,” said Weiss. “On the other hand, xTechs have shouldered a lighter regulatory burden, and so have used the bandwidth to experiment with their customer journeys. The agile quality of fintechs is what their partnership with banks is predicated on.”

Deole agreed: “Incumbents are forced to prioritise and pick their battles.” More often than not, the ‘if-it-ain’t-broke-don’t-fix-it’ mentality reigns supreme.

“I would recommend that banks approach the challenge sequentially, first with an intelligence platform,” said Deole. “Once they start receiving rich data, they can use the insights to ratchet up their service’s customisaton. When working around legacy infrastructure, the ‘big bang’ approach can be complex and costly.”

Deole told Finextra that he hopes bank boards will have more confidence and trust in circle of experience states and expects to see more of this “in a year or two.”

Justifying the investment

The cost of this enterprise is a factor that needs to be considered carefully. Specifically, how can banks be sure they will receive a strong return on investment?

“You need to study the data and the intelligence it provides,” argued Deole. “A circle of experience will boost your sales per customer, increase customer loyalty, and reduce churn. By how much can be deduced from the data. Ultimately, the bottom line is likely to increase thanks to the extra product offerings.”

For incumbents on this path, not only will commission revenue from the partner ecosystem rise, but as a result of the smoother product delivery, operational costs will fall.

Panella’s view is that “ROI can be everything or nothing. At illimity, we have a couple of initiatives that have brought great results, for example, the illimity hubs. This is a space dedicated to the customers’ passions and lifestyle within their home banking, which will give them access to the apps they use most frequently, such as a daily fitness app or a smart mobility one, with a single login. The partnership with Fitbit and with MiMoto, proved that the API economy can be done.

• Fitbit: the customer can accumulate money in their savings account based on the number of steps he/she takes, calculated by the platform.
• MiMoto: the customer can put their scooter trips made with MiMoto, a scooter sharing app, on an expense account from their bank.”

To partner or not to partner?

So, what is stopping financial institutions from developing new services in house, and taking all of the revenue from the extra business?

“Banks want to be best in their area and focus on core business,” Weiss noted. “It’s better to build a partnership with an expert, as opposed to creating it yourself, in house. The only reason nowadays firms should consider developing their own service or product is if they believe they can to it in a unique way, and at a competitive price.”

Deole agreed: “Do we really need to build everything from scratch? In today's world, the answer is no. There are countless solutions to hand within the xTech ecosystem that can expedite the process, and at a lower cost.”

Weiss added: “Consumers have strong relationships with brands. They will purchase from their trusted brand even while the same or similar product is offered elsewhere. It’s about familiarity. This means it is safer for financial firms to partner. It allows them to pull in and retain custom most effectively.”

Reaching a 100% circle of experience index

There is clearly strong demand from the consumer side in the circle of experience. So, what is stopping this from happening now – how close are we?

According to Deole, we are quite far. The good news is that “there are movements from the likes of Amazon, Apple, Google, and Meta, in this direction. They are leaders when it comes to this kind of thinking.”

The circle of experience revolution is even starting to rub off on the original equipment manufacturer (OEM) sector. Car manufacturers, specifically, are trying to build the car-as-a-service function, whereby every need of a car buyer is met.

“Banks around the world are also working on the mortgage experience,” added Deole, “but many remain far from where they potentially could be.”

In a nutshell, consumers have a long time to wait: “Everyone is heading towards it, but they’re thinking about it and making baby steps,” he told Finextra.  

Handle with care!

At a glance, the circle of experience concept seems a no-brainer: a greater bite of the pie for banks, and a better service for consumers. Yet, there is a caveat – the homogenisation of the financial services and xTech marketplace must happen in a considered manner, to dodge some drawbacks.

“In bigger markets, it potentially will not impact that much,” predicted Deole. “But, in smaller markets, the risk is amplified, and it may eliminate competition. Lack of competition is never a good thing for the consumer.”

Should a big player such as Amazon enter a smaller country – with a population of 2-5 million – there would be no place for multiple ecosystems to address this. It would be a winner-takes-all scenario.

Weiss observes other points of tension: “The downside to the ecosystem becoming more homogenised is that brands’ relationship with customers becomes increasingly removed. This is already occurring in the hotel booking space, where the consumer relationship is sitting with the likes of Trivago, Agoda, and lastminute.com, as opposed to the hotels themselves. You tend to remember which hotel booking service you used – not the hotel name.”

Panella states that the ecosystem does not enjoy full homogeneity. “Financial services in a broad sense respond to different regulations, for example the Markets in Financial Instruments Directive (MiFID) for the world of savings, transparency for the world of current accounts, the credit rules on financing, the rules of ISVAP (now called IVASS) then the IBT (Insurance Business Transfer) in the world of insurance. This does not make things easy. They can be homogenised and made more fluid but the differences between experiences are present.”

While this structure may be more convenient for the consumer, it has the effect of pushing the smaller players out, and stifles competition. The topline message from the circle of experience concept is: implement but handle with care.