Over the past couple of years, I have had the opportunity to dabble in numerous projects for FMCG clients. Recently, however, this pattern has shifted and I have worked on several projects in the financial services sector, giving me a chance to engage with the challenges and dynamics impacting this sector.
Across all areas of commercial activity, there is increasing focus on innovation. In mature markets, growth is slow and it seems that the best opportunities to deliver against revenue targets come from not simply tweaking the existing but taking a fresh approach. When it comes to the financial sector, innovation is undeniably taking place, but a lot of this is driven by the external context, rather than established players deciding for themselves to do things differently. How money is managed is changing rapidly – thanks to changes in technology and the accompanying shifts in consumer expectations and habits. What is most interesting of all is the way that this new of ‘doing things’ is most apparent in emerging and developing markets, with mature markets lagging often behind.
Think about mobile money – this initially got going in Kenya. And now look at where the most sophisticated mobile payment ecosystems exist – there are in China. In mature markets, we are hobbled by our legacy systems which make switching to quicker and more convenient processes hard. Moving to contactless payment didn’t require waiting for the technology to be invented (that was around a long while ago); the delay came from having enough retailers who had installed the pay points that could accept this payment method. In emerging markets, it has been possible to build the infrastructure from scratch, using only the latest and best, which can work seamlessly across all types of digital processes and systems.
Mature markets are not only behind the curve in innovation. Some might argue there is a backlash as well as momentum to maintain the status quo. In an article earlier this year, Victoria Cleland, the Bank of England’s chief cashier, mentioned that she does not use contactless payment cards for personal spending – in part because she is yet to trust the technology completely. In Sweden, though the country is making rapid progress towards becoming the world’s first completely cashless society, there are growing concerns it is causing problems for the elderly and other vulnerable groups, as well as recognition that phasing out coins and notes could put the entire country at risk should Sweden encounter a serious crisis or war.
My final observation relates to how our relationship with money, and those organisations whom we talk to about money, is changing in the core fundamentals. In the UK, being able to buy a house is not a realistic aspiration for those in early adulthood. First-time buyers now wait longer – on average, they are seven years older than in 1960, and likely to be in their late thirties. In the face of this situation, some decide they will simply rent. Likewise, buying a car no longer seems such a critical entry milestone to adult life. Instead, there is great aspirational appeal in not being tied down, and instead taking the opportunity to experience life and work in a more flexible manner. I paint an extreme picture but only to bring out what challenges this presents for financial organisations.
If people are no longer buying houses or cars, gone is their opportunity to establish a long-term relationship with customers by providing them a mortgage or loan; if people are not slotting into standard regular jobs, gone is the opportunity to have salaries deposited in a nice and steady manner to build up bank capital; and with a desire to travel and focus on experiences, gone is the need for credit cards and other vehicles to facilitate spending.
It is a world for the brave, with the greatest innovation found not quite where and how you might expect it.