As financial services undergo some transformative changes, we talk a lot about where the puck is headed. The company, product or service or set of technologies that can answer this question is at a huge advantage as incumbents invest in their digital future and tech firms are gunning for their markets.
Nikhil Lele has been thinking about the future of finance a lot. The EY partner leads digital business for the firm’s financial services sector. And for the last nine months, he was the lead author and architect of a research study the firm recently published called The Next Wave of Consumer Financial Services.
Nikhil and I discuss how he sees consumer financial services being reframed over the next few years and why the move to subscriptions — like we see with Netflix or other popular consumer services — will likely make a big mark on the industry.
Skating to the financial puck
Over the past ten years, we’ve seen the financial industry make great strides in offering new and enhanced digital experiences. But what we keep running into across our clients, everyone is thinking about where the next wave of value is going to come from. How do you really deepen relationships with clients? How do you really attract and acquire net new customers? Our clients struggle with these questions.
That prompted us to take a step back and look at factors beyond the narratives of digital transformation that will change the ways financial companies deliver value. We approached our research by speaking to dozens of clients to understand their perspectives on growth and where they see their businesses were headed. We also undertook a piece of primary research that was very quantitative in nature.
Reframing consumer financial services
Reframing is about how value creation and capture will fundamentally change in the years ahead. It’s not about core disruption or incremental change. Consumer behaviors are changing and so are the ways they engage their financial lives. The smartphone didn’t just offer a better phone, it fundamentally reframed the expectation of value around access at your fingertips. The fact that in ecommerce we expect two day free delivery didn’t exist years ago.
That reframing concept is fundamental in financial services — it’s about creating an entirely new ecosystem of value around how consumers engage their financial lives.
The move to financial subscriptions
The evolution to subscriptions is really the final leg of a set of building blocks. The first block is a different way of instilling trust and serving consumers through a new definition of trust. The second is really rethinking what a platform-based ecosystem is in financial services. Finally, virtually every aspect of consumer behavior is evolving toward renting, pay for use, or subscriptions to whatever the consumer wants to access or consume. So, the notion of owning core assets is waning as a core consumer context.
When we think about financial services evolving in this direction, it’s really following a trend that’s being set in every aspect in a consumer’s life. Institutions are starting to think about moving beyond the current product-based, a la carte model into bundling solutions. Early on, we’ll see convenience bundles that bring together a couple of products like investment access and advice into a fixed fee arrangement. Over time, we see bundles becoming more complex and oriented around a life-event framework. Institutions that can bundle access to curated products and services with marketplace access is where we see things headed.
Who will offer financial subscriptions?
When we did the research, we uncovered that the biggest impact will come from three directions. In banking, we saw consumers, especially younger ones, show a strong preference to their banks offering more holistic and lifecycle-based bundles. In wealth management, we see clients ascribe value to the human relationship with their adviser. We’re also seeing that wealth management customers still navigate many complex life and financial decisions on their own.
Lastly, a large technology player can come in and offer access to holistic services and bundles — even if it’s just an offering of the experience that sits on top of the bundles themselves — that can be significantly disruptive. Customers show a willingness to engage tech firms for bundles.