Opportunities for growth across financial services -- from insurance to retail banking
In much of financial services, a "perfect storm" of challenges is leading institutions to embrace new thinking. Heightened regulation, margin compression, declining use of branch networks, asymmetric competitors, and increasing commoditization -- to name just a few factors -- mean that there is real urgency to change. But where should financial institutions head?
New Markets believes that there is much room for growth in this industry. For instance:
- Even in the United States, 44% of households either have no life insurance or believe they are underinsured
- Only 57% of U.S. households have a retirement account, and the mean value of that account is just $50,000
- Few customers report being delighted with their retail bank, despite constant interaction with the institution
- In emerging markets, the data is even more stark – in India, for example, less than 2% of households have life insurance
Foster innovation while mitigating risk
How can companies generate growth in under-penetrated market segments without taking undue risk, and how can they improve their position among the affluent? We believe the answer lies in creating a systematic approach to innovation. Too often, financial services firms have innovated within product silos and have been intolerant of experimentation. The siloed approach reflects how these firms are typically structured, and it is understandable that companies are reluctant to experiment with valuable brands and with products that may remain on their books for decades. However this is not how sustainably successful innovators act in other industries, and some firms show how a different approach can work in financial services.
In credit cards, for example, many successful issuers embrace a totally different model. Marketing will develop new propositions for tightly targeted consumers, and Risk will model how these people have behaved on other card products. Operations will coordinate a series of small solicitation campaigns – each one slightly distinct – and Marketing will carefully monitor success through each stage of the customer acquisition funnel. Risk will then track these customers month by month, assessing what their behavior versus benchmarks implies for their lifetime profitability. Based on this calibrated data, card issuers can judge within months which propositions are most likely to succeed or fail, and they can then gear up behind national launches of new products. The overall approach is cross-functional, scientific, and highly transparent to monitoring by senior management.
As much as they can benefit from new ideas to grow their markets, many financial services firms can also utilize a disciplined process that makes innovation reliable without extinguishing creative sparks. New Markets helps our clients bring proven, rigorous innovation processes into the financial services realm, while still being mindful of the unique regulatory and risk-related constraints of the industry.
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