Design of future financial services

Disruption in retail banking

Banking services will be under pressure during the years to come. When looking at retail banking, new entrants are standing at the door step and ready to capture substantial shares of the job that used to be solved by banks.

The war on payments has been kicked off by (less successful) wallet solutions like the Google Wallet, and lately and more dramatically the ApplePay has made the appearance as a serious contester to the traditional card payments. Rumour has it that other tech giants Samsung and Google (Android) are pursuing the mobile payments space as well.

But not only payments are being targeted. The job of offering financial insight and advice is being solved by data aggregators such as, while investments and long term wealth planning is moving to pockets of companies such as Betterment.

This article will uncover the disruption that is currently – or soon to be – entering the space of financial services. For now, I will turn the focus to retail banking, though the threat is just as evident for commercial banking.

Banking has become a digital product

For many years, banking and financial services has been a pure digital product. Apart from the few merchandise items at your local bank branch office; everything you buy at a bank is a digital service. In Scandinavia the banks are hardly handling cash any longer, leaving all your finances, mortgage, accounts etc. being fully digital entries in large databases. For a little while yet, you will still have your tangible bulk of plastic credit and/or debit cards, but not for long. Within a few years, all of your cards – or the credential that your cards represent – will be stored and accessed through your phone.

So, banking has become a purely digital business. For the consumer this translates into convenience and accessibility of services. For the banks the transformation towards online distribution models with online banking services drives efficiency.

Digitalisation fuels disruption

History has shown how digitalisation has turned industries upside down, leaving the incumbents in rubbles at tremendous speeds.

The examples are many.

Kodak – holding the tagline of the “Kodak Moment” –once an icon within photography with a market share in the mid 1970’ies of 90 % of photographic film in the United States. After the emergence of the digital camera and later smartphone cameras, the company struggled heavily, leading to bankruptcy in 2013.

Video rental chain Blockbuster at its peak in 2004 had up to 60.000 employees and over 9.000 stores. Due to competition from digital entrants like Netflix and Redbox, Blockbuster lost significant revenue and filed for bankruptcy late 2010.
The irony of the story being that Blockbuster turned down a chance to purchase the still fledgling Netflix for $50 million only four years earlier in 2000.

Music industry has seen similar disruption where Apple’s iTunes store has transformed the distribution model for buying music, and lately the industry again faces heavy transformation, as streaming services such as Spotify are being the preferred way of consuming music.

The story goes on: “Taxi” service Uber challenging the traditional taxi operating model; AirBnB challenging the traditional booking and travel agencies. Amazon, first capturing the market for selling books via online sales, now selling more books digitally than in print.

Identifying the “jobs to be done”

The disruption in the industries listed above all occurred because one or more entrants where able to solve a job better than the incumbents.

With Kodak, digital cameras solved the job of “snapping” a moment more convenient and at lower cost than the traditional film-based camera.

Netflix offers a more convenient way of consuming movies and TV shows than traditional media (and video stores) – both in terms of accessing and enjoying film and TV shows, but also the job of discovering new material to consume. –The same goes for Spotify in music.

The key is to identify the “jobs to be done”. What jobs do we actually hire banks to do? By identifying these jobs, we can better estimate who have the advantage to harvest future tech opportunities in delivering these jobs and how.

“Jobs to be done” is a key concept of Clayton Christensen in understanding disruption.

(To get more in depth with “jobs to be done” analysis, listen to “The Critical Path” podcast. Especially episodes 134 and 135 are great for understanding methodology.)

Identifying “jobs to be done” is a way of figuring out what is actually is that customer buy. Hence, there is a discrepancy between what customers buy and what is sold in the store. In a nutshell, the consumer wants to hang a picture on a wall, hence wants to make a hole in the wall for a nail, while the solution sold to the customer is an electric drill with all kinds of fancy features with little interest and use for the consumer.

Clayton Christensen explains the “job to be done analysis” with an analysis conducted with the aim of boosting sales of milkshakes at a diner. By observing the guest at the diner via anthropological-like studies, it was discovered that the milkshake actually served two different purposes. The first purpose was the job of breakfast. In the morning the milkshakes where picked up as a “to go” breakfast for people on their commute. The milkshake is a convenient food for consuming in the car. However, for this customer segment, key was to get fast in and out of the shop, having no lines and hassles. Likewise, the content of the shakes could be altered to provide better nutrition value. The latter customer segment was “after lunch’ers”; primarily mothers with children, who took the kids for a treat after school, soccer or the like. For this segment the customer pains were too big containers for the kids to finish up, leaving it a struggle for the parent to have the kids finish their drinks, ending up in a poor experience of having bought way to much milkshake.

By discovering which jobs the milkshake actually solved, it was possible to identify ways to improve the offering and boost sales, by taking the viewpoint of the consumer – not that of a marketer.

Retail banking is about enabling daily spending and supporting life events

The two key jobs that retail banking is hired to do for consumers are to 1) enable daily spending and 2) support consumers in financial transitions of bigger life events.

Daily spending includes enabling consumers to actually spend their salary, buying groceries, paying bills, etc.

Supporting consumers in financial transitions of bigger life events includes supporting personal transitions throughout life such as getting married, buying a house, becoming a family, buying a car (at least in Denmark this is considered a life event due to the high cost of cars :-)), buying a boat, summerhouse, retiring, getting divorces, etc.

For both of these jobs, the traditional banks fall short in actually solving the needs, and new entrants are well positioned to solve the job better than what is currently offered by most banks.

The banks try to be innovative by breading faster horses. New, fully digital banks emerge – often spawned by a larger bank that has faced that its traditional operating model and legacy IT systems will not allow for a full digital product offering that matches the ever increasing customer demands.

Examples include mBank, uBank,, ActivoBank.

All slim, no frills, online banks with a pure digital product offering and distribution model, leveraging latest technology available through any device.

However, when addressing the actual customer pains and exploring the jobs that customers expect their banks – or someone – to solve, the pain killers for those pains are not provided by the pure digital banks.

When looking at daily spending, consumers engage in complex ecosystems and value chains when completing all of the transactions that are included in everyday life. These include utility companies, groceries, going to the movies, transportation etc. All transactions include recipes (supposedly) stored for later reference and almost each company having its own bonus or loyalty programme to take into consideration.

The organisation CFIR conducted a study on named “the future of money” that entails some interesting findings. The study shows that three jobs have to be solved regarding daily spending – each have a little 2 min. explainer video:

People do not feel that they are in control of their spending. Recipes are stored, but after a while thrown away. Spending is not actively monitored and managed, people want to effortless control

They want to save, make a budget etc., but never actually get it done. They need motivated engagement for doing so – financial management is perceived as plane boring – and who will argue against that?!

Consumers want the most out of their money, but it can be a jungle to navigate through the many loyalty programmes and coupons, they want to optimise their spending.

Finally, to make a payment is not always about efficiency, sometimes it is a mean for being social – like in a bar. Likewise, making a payment can be about signalling affluence.

For supporting life events, each life event must be explored individually to identify the actual customer pains and the jobs that must be solved.

In general, like with daily spending, the complexity of the systems that consumers have to deal with in almost all of these life events is enormous. Think of the process of buying a house, from discovering the house to getting approved for the mortgage in the bank, to the bidding, public registry, moving in, renovating.

The role of the bank in these complex processes is very limited today, where only the actual finance is of concern to the banks. However, when asking the customers – e.g., in relation to buying a house – they were surprised that the bank didn’t take a more active and facilitating role in this process and that the process in general was so unclear seen from the customers perspective.

 New services and new entrants

Banks are doing something to harvest benefits of emerging technological opportunities. Apart from the launch of pure, slim digital banks, banks across various regions of the world have started to launch mobile payment services.

So have telcos and mobile companies – currently, biggest contester seems to be Apple with ApplePay, but one shouldn’t write off neither Samsung nor Google (with Android pay), who are rumoured to launch mobile payment services shortly. The war on payments has indeed begun! Of cause, the platform ownership that entails both Apple and Samsung gives these companies a huge advantage of delivering the most convincing customer experience.

In terms of financial overview, data aggregators have been around for quite some time, providing the overview that consumers have been wanting for their banks to offer (national legislation varies in terms of access to and permission to utilise financial data).

Companies are starting to re-engineer the purchase process themselves, and combine this with build-in loyalty schemes. This is the case of Starbucks, who have launched their Starbuck app that works like a pre-paid in-store credit that also links customer bonus of each purchase. -A smart way of providing a better buying experience whilst increasing customer loyalty.

Zerved app enables customers to buy take-away food at local restaurants and paying via Zerved app. The restaurants can push offers to customers, who can grab the offers and are already “served” once they enter the restaurant where they only have to pick up the food, the payments is handled via the app.

Alibaba started out as an eCommerce platform and has grown into being the platform for buying anything online. Bringing consumer and merchant together, potentially cutting the banks out of the transaction flow.

Betterment takes care of wealth management via simple and life goal oriented investment schemes.

A number of “social”-oriented services are emerging. Fidor bank offers crowd lending and advice from forum-like functionality, leveraging the trend of social media to use the wisdom of peers to financial advice.

eTorro makes investment social. Follow and “copy invest” talented investors and the system automatically invest your money copying every investment of the ones you chose to copy.

LendingClub offers lending via crowd funding, tapping into the money pool of the crowd.

The examples above are just a short snippet of all of the many companies, apps and services that are entering the space of financial services. The common denominator is that they all solve some of the jobs that customers need to have solved as part of both there daily spending and partly supporting life events – or at least part of the life events.

The future of financial services

The future of financial services must focus on solving jobs for customers and relieving some of the pain points that are currently build in to the super complex processes, value chains and eco-systems that customers have to navigate today.

The move for banks to sustaining financial services is not to make existing services more efficient. This is a necessary step for keeping customer content and move along with society that in general is becoming more and more digitalised. However, the winning platform for delivering financial services will not be the faster horses. The winning platforms will be the once that integrate in the customer processes and eco-system.

If the banks position themselves in these eco-systems, as part of the customer’s process they have a chance of capturing the transaction and inject additional financial advice and products/services along the way. If not, banks will be reduces to mere infrastructure, solely providing access to the financial infrastructure and clearing, leaving the customer engagement and design and providing of experience to the new entrants.

One example of a bank taking action in this regard is Commonwealth Bank in Australia. In 2011 the bank released an app for searching for properties for sale. The app uses augmented reality to overlay sales information and property data when holding your smartphone in front of a house for sale. This might seem like a lame gimmick, but the true brilliance is that it injects Commonwealth Bank in part of the process of buying a house that is was previously not a part of. In this way the bank is already in the awareness of the consumer when searching for a house, and not only when the customer inquires about mortgage and approvals.

It is similar to the way that Linkedin has captured being part of the beat of searching for jobs and updating resumes. Earlier, people updated their CV only when applying for a job every 2-3 years (presumably). Today, Linkedin has build mechanisms around their services that makes users check in on the service on a regular basis, making the service even more valuable for its users, being part of the beat.