"Rather than just looking at disruption as a function of technology innovation, we wanted our research to get at the true nature of what was going on." - Steven Lewis, MarketBridge
[Fintech entrants are creating financial services industry disruption by changing the customer value equation and causing a major impact on consumers behavior. Fortunately, the history of innovation and the design thinking process provides many proven lessons on how to most successfully respond to accelerating rates of change and disruption in your industry. The first most important step that is cited is to take time upfront to deeply study the challenge before you and isolate the core issues. Then, and only then, can you uncover the best competitive opportunities for your business. This measured approach provides a much more efficient and targeted direction, allowing you to marshal the right resources and activities to strategically respond versus merely reacting.
That is why insightful market and client research is so crucial to set the proper mindset and strategies needed to provide ongoing value to customers in our current environment of accelerating change. It is for that reason that the Institute is thrilled to be able to explore this topic more fully with Steven Lewis, SVP of MarketBridge – a marketing and research firm with 25 years of experience in helping businesses develop and implement innovative go-to-market strategies across their evolving customer lifecycle.
We will focus in this first of two interviews on the initial two steps outlined in their extensive research and analysis report - Fintech Disruption Go-To-Market Toolkit - on how to determine and design a response strategy to industry disruption. They analyzed over 100 financial services and fintech companies and surveyed 1,500 consumers across banking and payments, insurance, and investments to identify which incumbent strategies can promote advantage.]
Hortz: What was behind your decision to conduct research on FinTech disruption for your financial services clients?
Lewis: Disruption is such an interesting topic and really, as we found out, pretty under-studied in how it relates to a go-to-market strategy. We found, for the most part, published research focuses on either investment and valuation or technology innovation. Rarely is attention paid to how incumbent firms – market leaders – should be addressing these disruptive challenges and securing their own advantage through sales and marketing activities. Our perspective is that while investing in innovation is imperative, this must be complemented with immediate go-to-market actions – whether that be improved customer experiences, clearer/bolder messaging, expanded/refined product offerings, etc.
Hortz: Why are you emphasizing “immediate response” in your research and toolkit?
Lewis: Financial services as an industry moves relatively slowly. Established firms must execute careful long-term innovation strategies across their organizations to innovate not only their products and services, but their entire organizational approach.
In the meantime, however, this wide window of disruption affords incumbent firms the opportunity to execute successful mitigation strategies across their business. We see an immediate need to enable firms to respond more quickly with differentiated advantages they have over disruptive entrants. We view this two-pronged approach as an imperative for incumbent success with regards to disruption and long-term value enablement.
Hortz: What are the primary forms that this disruptive innovation is taking?
Lewis: Rather than just looking at disruption as a function of technology innovation, we wanted our research to get at the true nature of what was going on. Disruption occurs when the customer value chain is altered. We were able to categorize and plot disruptive value on two primary axes: functional value directly related to the product or service (price, features, etc.), or emotional value related to the experience of shopping, purchasing or using the product or service.
From the research, we categorized three types of disruption and the appropriate response strategies for each:
- Customer Experience Innovation – Improving the customer experience (CX), or removing barriers, associated with purchase or usage of the product.
- Product Innovation – Increasing consumer utility over existing products with feature/
function additions or subtractions.
- Market Innovation – Solving an unmet or unaware consumer need, expanding the
marketplace or creating new markets.
Ultimately, disruption is happening because the value consumers attribute to the product or service has changed.
Hortz: How would a firm go about determining the nature of their response to industry disruption?
Lewis: A successful short and long-term response strategy stems from understanding the specific threats your business is facing. While technology provides the catalyst for disruption, customers finding different sources of values (as noted above) is the real cause of disruption. Too often incumbent firms’ strategies focus on a response from their own biased points of view.
For example, they may view an incumbent offering as merely a product (functional) innovation, when the disruptor is actually changing the entire experience for consumers. Robinhood isn’t about lower fees, it’s about the promise and opportunity for unbound investing riches. In other cases, disruptors create whole new product value that incumbent firms read with their established emotional trigger bias.
Hortz: What are the steps you recommend a firm take to develop an immediate pathway to industry disruption?
Lewis: For incumbent firms facing disruption, gaining an accurate and clear understanding of how and where customers are attributing value is paramount to a successful response. That is step one.
Step two is assessing your strengths and defining the opportunities for which you can respond. We have defined four Advantage Factors below (and go in-depth within our toolkit).
And step three is putting those advantage factors into immediate action from a tactical standpoint. Defining the specific things your sales and marketing teams can go out and do quickly.
Hortz: What are the biggest advantages for incumbent financial services firms to focus on in developing a disruption response?
Lewis: There are four core advantages we see incumbents needing to leverage as quickly as possible:
- Existing Revenue Pathways – Incumbents have a strong customer following and established position. They need to harness their client base to refine and broaden their appeal. Our research indicates financial services incumbents typically have significant customer loyalty. So, an example might be to focus on loyalty of their customers – identifying those key segments most likely to switch and rewarding their loyalty.
- Audience Perceptivity – Incumbents have a massive amount of historical data and insights to gain a greater perception into market needs. Using this data to their advantage might mean increasing overall personalization, matching the right content to the right buyer, and understanding when and where to engage with buyers based on what that data says. If we pull an example from the insurance industry, State Farm did a great job at leveraging data to improve their digital experience (along with the hiring of a Chief Digital Officer) and increased their app installs and online bill payment as a result.
- Omnichannel Presence – Fintech entrants by nature are going to use technology as their main product delivery platform. But our research shows physical presence in a community, in-person, or over the phone is still sought after. This might mean enhancing those experiences. Capital One, built a new experience for customers by offering coworking spaces, free wi-fi, and conference rooms with their “Cafes.” In turn, they quickly saw an uptick in millennial deposits.
- Brand Platform – The most underused tool is a brand’s platform. Fintech entrants will struggle to delineate their brand and build awareness. But incumbents already have an established brand platform. Incumbents need to emphasize this and for example, stress their ability to service more customer needs than that of an upstart.
Hortz: What are the biggest obstacles and challenges for companies in making these needed changes?
Lewis: The slow-moving nature of financial services firm innovation, combined with extended timeframes of disruption, can often lead to delayed response or inaction. At the macro-level, we see industry leaders taking disruption seriously and working to build innovation across their products and services as well as changing their culture.
Where we have concern is around the pace of that change, and the often overlooked opportunity for the most immediate response, which is in the hands of front-line go-to-market teams that can help secure market position and improve customer perception. They can be executing these actions while long-term efforts (business transformation, completely new products) are being developed.
In creating a response strategy, incumbent firms must focus on understanding their customers with data and insights that can be actioned immediately through go-to-market efforts.
Hortz: Any other recommendations from your research and ongoing educational efforts that you like to offer our financial services readers?
Lewis: The most interesting insight that came from our research was that at a time when in-person or face-to-face interactions have been so dramatically impacted, we have seen incumbent firms continue to successfully leverage their presence with consumers by phone, video and other 1:1 communications. The observation really opened our eyes to the impact incumbent firms can have using the Presence Advantage in creative ways beyond the in-person for consumers. It also highlights the advantage these firms have over disruptors and the need for renewed omnichannel coordination.
All in all, we can’t stress enough that Go-to-Market innovation provides an immediate pathway for incumbent success at any stage of disruption. We would welcome any of your readers to join us on Tuesday, October 20th @ 1:00 PM ET for our “Activating Competitive Response to FinTech Disruption” webinar (click here for complementary registration) as we discuss more tactically what incumbent firms should do at the Go-to-Market level. If you can’t attend the live event, we suggest you still register today for access to the on-demand recording.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).