True disruption is hard to achieve and rarer than you think, but when a company addresses a real consumer problem and rides the wave of consumer change, you see the birth of a major market player.
We often see the biggest disruptors thrive in times of change, usually as a result of economic challenges. It will come as no surprise, therefore, that the likes of Netflix, Uber, and even Airbnb rose to prominence after the 2010 financial crisis, simply because they provided solutions for consumers facing real problems in a time of change.
Each brand delivered convenience and financial savings through the latest technology and a shared-economy model, creating new, exciting, and inherently better consumer experiences. This is exactly what consumers wanted, and it helped spawn a host of new markets.
This model is powering a revolution in the card payment market today- one that has so often been at the forefront of change and innovation in its own right. Today’s consumers – banked or unbanked – are demanding more from their suppliers, forcing them to reinvent themselves and their product offerings. This is happening as the financial services industry as a whole faces increased regulation.
The disruptive consumer
Historically, brands and service providers have relied on consumers basing their purchasing decisions on basics such as service levels and fair pricing. But the modern consumer has developed far higher expectations based on many new metrics, such as personalised interactions, proactivity, and a company’s ability to offer a connected digital experience.
Sustainability and ethics: critical factors in consumer choices
Today’s consumers are disrupting traditional buying patterns and businesses, demanding cloud, mobile, social media and AI elements to deliver an immediate, valuable, personalised experience. They have learnt from Netflix and Uber, and any business that fails to address this will fall by the wayside.
But the disruptive consumer does not stop there. According to research from Capita, over half (56%) of all consumers said it was important that their bank or building society acted sustainably and ethically. This does appear to be a direct result of the pandemic and increased awareness of the climate crisis, with consumers taking time to reappraise what’s important to them.
Put bluntly, these views have been extended to those businesses where they wish to spend their money. Millennials are leading the charge in this ethics revolution, with 60% claiming it’s important, followed by Boomers (57%) and Gen X [39-53 years old] (55%).
The democratisation of financial products
Financial inclusion is essential and the cornerstone of economic development. A bank account enables them to use other financial services, such as saving, making payments, and accessing credit.
According to The World Bank, 71% of people in developing countries have a bank account today, up from 42% a decade ago, while globally 76% of adults have an account, up from 51% a decade ago. These tremendous gains are now more evenly distributed and come from a larger number of countries than ever before.
But this still means some 1.4 billion people remain outside the traditional banking sector. These tend to be the most complex people to reach – often women, people experiencing poverty, the less educated and, very often, those living in rural areas.
The untapped market potential: Fintechs and financial inclusion
While digitising payments is the right approach, much more is needed. Governments, private employers and financial service providers – including fintechs – should work together to lower barriers to access and improve physical, economic and data infrastructure. This means fintechs must build trust and confidence in financial products, develop innovative products, and implement a robust, enforceable consumer protection framework that includes the aforementioned individuals.
After all, the unbanked and underserved sectors are today the most significant untapped market opportunity for many fintechs.
The integration of people and technology
The evolution of technology is at the heart of efforts to better serve customers. Adopting new technology is, therefore, critical for financial services organisations to thrive.
Progressive financial services companies are seeking new technologies to improve efficiency and service speed and to deliver a better customer experience. This is, without a doubt, a direct result of competition from consumer brands like Amazon, Facebook, and Google.
The ongoing digitisation of financial services
Even before the pandemic, customers increasingly expected easily accessible and fully personalised digital products and services. As a result, financial institutions were already rethinking processes, expanding tech investments and testing new applications.
Incumbents have traditionally sought technologies to increase efficiency and reduce costs. Fintechs, by contrast, start with a customer problem, identify ways to address it with digital tools, and then build new business models around digital solutions.
The digitisation of financial services is ongoing. Enterprises have a choice: make innovation the focus of a stand-alone organisation or integrate it throughout the business. The winners in this race will be the ones who marry technological innovation with the expectations of today’s consumer.
The progressive consumer
Over the last few years, some of the most influential global financial institutions have committed to reducing emissions attributable to their operations. They have also pledged to reshape their lending and investment portfolios to produce a net-zero carbon footprint by 2050.
ESG is big business. Banks are restructuring to adopt green pledges, and fintechs are developing new solutions to address climate-related issues, all as part of detailed, overarching ESG strategies. ESG-focused fintechs have a unique ability to achieve rapid growth, deliver sustainability-focused innovation, and attract investment capital to support their efforts to improve the environment and society while generating substantial returns. All of this is being done to meet the requirements of an ever-evolving, demanding consumer.
Climate-centric fintechs in the payments sector are driving the most prominent change, focusing on influencing the spending behaviours of sustainability-minded consumers. By engaging with this demographic, fintechs can sustain their revenues by aligning financial transactions with ESG goals.
Competition and innovation: Creating novel financial products and services
Over the past decade, new digital fintechs have begun to transform and disrupt the financial services sector. Technological advances in finance are not new, but progress has arguably accelerated in the digital age, driven by improvements in mobile communications, AI, machine learning, and information collection and processing technologies. An extraordinary increase matched this revolution in consumer expectations.
The payments market, in particular, has experienced a rapid proliferation of digital innovations that make payments faster and cashless. Consumers in developed and emerging markets have increasingly adopted fintech services because of their convenience and lower cost. The challenge for new and existing firms is to create and deliver new financial products and services as they compete.
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About the Author: Jeremy Baber is the CEO of virtual payment card provider Lanistar.