Previously, banks had a prime position on the high street. Now, that’s wavering. In the future they may not even have a position in our phone apps. Open banking has enabled brands across the board-from fashion to mobility to healthcare-to act as financial institutions, embedding loans, payments, payroll and more into existing offerings. As financial services (FS) becomes increasingly seamless and embedded in other products and services, could it eventually become invisible? Is an entirely new form of finance on the horizon? Or during these times of flux should FS stay true to the tried-and-tested ways of managing people’s money?
Payal Wadhwa, Vice President, Innovation, Strategy & Design, frog, weighs in on the ever-evolving world of finance and shares insights into some of the ways that frog is working in this space.
Payal Wadhwa: A deep understanding of latent customer needs, and a consistent duty towards them, is key. The role of those delivering FS is more crucial than ever in this hyperconnected world. Today customers demand and expect much more from banks and insurance companies than they did just five years ago. This shift is not exclusive to FS; it is a result of a changing world as we build a better understanding of those who have possibly been left behind, in order to build stronger societies and do better at large.
In this digital-first era, everything requires attention: raising awareness, gaining trust, clarifying intentions, enhancing financial literacy, streamlining product on boarding, providing assistance throughout the engagement lifecycle and actively promoting inclusion.
The benchmark for financial products and services has been elevated by entities that are not even part of the industry. To illustrate this point, I frequently use this example with our UK clients: if you are a high street retail bank, your competitors are not only Santander, Barclays and HSBC. Nor are you just competing with the likes of Apple Pay, Google Wallet and Amazon. Your true competitors are those organizations who are entirely fixated on raising the bar for what good services look like-and are creating products that make consumers feel like someone’s taking care of them. We’re talking about Airbnb, Zipcar, Wise, etc. It is these tangential services that elevate the experience of engaging with purposeful brands that understand what people actually want.
PW: There is abundant data about customers, the choices they make and how they’ve been served in the past by multiple organizations. The real challenge lies in effective, connected and ethical use of this data. Companies struggle to monetize first-party data, or lack a coherent strategy that connects their product, experience, purpose and business goals. All of these elements are crucial for building meaningful relationships and services. While it’s important to prioritize customer needs, organizations must also consider their business strategy, their maturity across digital, brand positioning and right to play, their leverage and weaknesses, larger industry trends as well as their anchors in data, technology and infrastructure to achieve their goals.
It is imperative that organizations understand and acknowledge their role in contributing to society and the planet, particularly in industries such as FS that have a direct impact on both areas. Although the conversation surrounding environmental responsibility is evolving, affecting positive change will require time and effort. Very soon, all businesses will be obligated to report on their planetary responsibility more diligently and those who lag will face intense scrutiny. Striking a balance between customer insight, societal benefit and business value is key to progressive impact. Contributing positively to society and the planet is non-negotiable.
PW: The last decade has seen a barrage of non-financial institutions offering financial products, which changes the game. We get brought in to help many organizations consider new avenues for growth, and offering FS is a big area of focus. A recent example of white space innovation for our team at frog is work we’ve done for a leading travel company making big strides into offering financial products and addressing a market gap.
The FS industry possesses a plethora of untapped opportunities, and traditionally relies on innovation from other industries. With new challengers entering the market, this is being subverted. Being the first to offer a product or service can make all the difference. But regardless of the opportunities for new ways to make profit, providers within this sector, first and foremost, hold a vital responsibility to ensure that their services do not harm the financial wellbeing of their customers. FS deals with people’s most personal assets: their money. All organizations working in the FS sector consistently need to evaluate the benefits and challenges of invisible finance for both their business and their customers’ safety, security and convenience.
PW: Invisibility can unfortunately lead to exclusion. Many people view it as a kind of dark magic, with mechanisms that are not fully understood. This can create reticence to opt in when things work ‘invisibly’ in the background. Another concern with invisibility is automation. When you cannot identify who is supporting you in a particular journey it can be difficult to determine how much of it is automated.
With rising automation, there will likely be a proportionate demand for control. For instance, we’ve been working with a partner on a program to deliver unsecured lending through a progressive continuum across products in market. Let’s take credit cards as one product specifically. If a traditional bank partners with another brand to offer a co-branded card and a fraudulent transaction occurs, the partner brand’s reputation is at risk. Take that one step further: if the customer doesn’t know which part of the process is automated, brand trust becomes a massive concern. Now imagine a more complex ecosystem with more than two known players involved—the responsibility around who is accountable is increasingly unclear to a customer.
PW: I do believe seamlessness is not always a good thing. Especially with service provisioning becoming more and more invisible. It is important that people understand what they’re opting into. It’s good to build in a certain level of friction in order to make sure customers don’t end up engaging with services that can have a detrimental effect to their financial wellbeing and security.
People need to still understand how multiple players within these product ecosystems can help them achieve the goals they’ve set for themselves. Introducing deliberated and conscious friction, AKA ‘positive friction,’ in services can help customers be better off, more secure and have healthier relationships with financial institutions. This positive friction can signal care, ceding a degree of control to customers who may know themselves and their priorities better at specific moments of engagement.
PW: Consider IKEA’s business model: selling furniture priced cheaper than the pre-assembled alternatives sold by its competitors. Yet price and value are not the same thing. Studies have shown that people actually value IKEA furniture more than pricier alternatives because they’ve invested energy in building it themselves. Suddenly, the perceived value of that object is higher because they’ve put in the effort. This is a great example of how positive friction can increase associated value, confidence in a brand and therefore customer tenacity to stick with a product.
Spending time making better choices toward managing one’s money is a good outcome for customers and FS alike. Organizations need to demystify FS products and build them in the customers’ interest in the first place.
PW: Experimentation can be a taboo word in FS, yet controlled experimentation to understand latent needs and newer opportunities should be strongly encouraged. This, of course depends on what you’re experimenting with and what your starting hypotheses and assumptions are. Most FS providers actually don’t have a shared understanding of customer journeys and points of friction today. Knowing what to eradicate and streamline across the service ecosystem is a big first step. Introducing the right level of positive friction comes next. Deep and well-crafted controlled experiments can help those engaging in the business of building products and services to attain a certain level of confidence, while reducing risk. Experiments help teams understand why people behave the way they behave and the potential for better relationship building between customers and organizations. Underlying this are questions of accountability, responsibility and where organizations draw the line.
A lot of it boils down to causal inferencing and understanding deep behavioral patterns. User/consumer understanding comes through research conducted via a plethora of methodologies. Ethnographic research is an oft quoted and used tool, with longitudinal studies being one specific way to understand how people behave, why they behave in that manner and what this insight could lead us to.
PW: There are some questions that no organization can shirk from. Are we creating products and services to help an organization reap short-term financial benefits—irrespective of customer duty—or are we willing to create services with a primary duty towards the customers? Are the challenges we seek to tackle scaled at an individualistic level, or are we looking to work on the level of human networks and societal changes? Researchers pick different methodologies—from ethnographic to longitudinal studies—depending on the outcomes one may look to facilitate. Having an outcomes-led way of working is key when crafting good experiments.
PW: To thrive in the new era of finance, it is imperative for institutions to be flexible and adaptable. Customer expectations change fast. Unfortunately, incumbent financial institutions can struggle with a relatively slow response time, since they tend to operate on 2–3 year cycles, influencing critical business decisions, including funding allocation. Prioritization is key to success but can be a challenging aspect for many conventional businesses due to the noise within their systems. It’s not uncommon to find projects with multiple teams working on outdated roadmaps set two years ago. This approach can stifle innovation, leading to teams that are constrained by past decisions and limited financial resources.
Innovation should never come at the cost of potential harm. Buy Now Pay Later (BNPL) is one example of an instrument that can pose significant risk towards bad debt. However, there is tremendous potential within the category if all checks and balances are put in place. Traditional financial institutions have long been concerned about short-term, thin file lending, more because of the risk to their own business and backbook value—leading to a lack of innovation in this area. As previously mentioned, with new challengers entering the market, change is afoot, but more needs to be done to protect customers from spiraling debt. We observed a flurry of activity in traditional institutions beginning to explore the space as challengers rose, especially through COVID-19. That said, many banks are watching this with caution with the incoming Consumer Duty regulation in the UK.
PW: We pride ourselves in making things real, closing the strategy-execution gap and bringing products, services, brands and experiences to life. By supporting partners in making better technological, data-centric and customer-driven choices we help them effectively manage the prioritization of products, programs and backlogs.
Our multidisciplinary teams tackle unique challenges, drawing on a deep understanding of business, customer behavior and technology. We leverage data to make existing products or services better, or to create new ones, shaping revenue diversification opportunities for our partners. Programs we’re often drawn into are ones that promote financial wellbeing, inclusion and better serve underbanked populations. We are committed to partnering with businesses to make more sustainable decisions and are increasingly seeing FS institutions seeking to drive that agenda.
PW: In the realm of FS, there is a growing interest in convergent and hyper-personalized experiences. The future of the branch is a rather topical subject and banks are grappling with means to maintain a high level of customer service as they transition entire business lines towards the converged services space.
A question that organizations often come to us with is how they may move towards being digital-first, bringing the two binaries of business and technology to work closer within an organization. The world is in flux, and organizations are in the thick of moments of reckoning that fundamentally provoke and propel them to examine new ways of working. Our work to support our partners can range from helping them become fluent with emerging operating models and workflows, understanding latency as well as opportunities in ecosystems as underutilized skill bases, introduction of newer and progressive skills and tooling, leveraging human potential as well as attracting the right talent.
PW: We’re beginning to see more and more partnerships and service ecosystems emerging. Different players are coming together to create services that allow them to capture the customer’s attention within the ecosystem of, for example, the home or the car. It opens up broader questions, such as: how can banks help with energy retail? How does that connect with the Internet of Things (IoT) devices you may have in your home? How might insurance companies play in the IoT place? How do you begin to think about auto finance when it comes to EV transition strategies? There’s an opportunity to capture the entire ecosystem, and the potential of newer partnerships emergent in FS is huge.
PW: The Internet of Payments (IoP) brings a payments capability into the IoT space—and with 29 billion IoT devices predicted globally by 2030, it is a game-changing opportunity. As the Machine-to-Machine (M2M) ecosystem continues to evolve, traditional human to machine interactions will soon become obsolete. Organizations will capitalize on first-party and partnership data to capture multi-site relationships with customers. The governance of these ecosystems is an exciting area that is still establishing protocols. The convergence of AI-powered tools, cloud, big data, tokenization and biometrics is paving the way for an abstracted landscape of payment mechanisms. In this digital-first world, connected services, strong partnerships and connected devices will create the financial infrastructure for novel ways of transacting. Leaders in the payments industry are boldly embracing new partnerships and business models to drive innovation and seize developing opportunities.
PW: During these challenging times, a substantial set of our partner organizations are focusing on enhancing and evolving their current propositions and operations, rather than expanding into new areas. As we help our partners deal with the headwinds in the economy, specifically here in the UK, we’re placing emphasis on optimizing their existing services and products to increase efficiency and reduce costs. This shift in approach has become more prevalent, even among newer and smaller players in the industry. As hard as these times are, to a certain extent, there is a much-needed correction in the FS ecosystem. Despite the uncertainty, the forward-thinking individuals we work with remain hopeful.
Looking back at the last financial crisis, we can see that it brought about some groundbreaking innovations, such as the emergence of big tech and the current VC ecosystem. Challenger banks also entered the market as trust in traditional institutions was waning. Additionally, this period highlighted the importance of understanding customers on a deeper level. There remains tremendous hope in what these times will bring to FS at large and the new wave of innovation that will emerge in two or more years from now. I do believe generative AI will change servicing and an increased focus on planetary well-being will create a new wave of financial products that encourage and support positive individual action. I’m a dogged optimist and look forward to what the shifting tide pushes the world of strategy, innovation and design to consider and build off in the years ahead.
This interview was conducted and lightly edited by Camilla Brown, Senior Copyeditor, frog.