3 minute read 20 May 2019
Futuristic business woman

How firms can evolve service and revenue models to meet customer needs

Authors

Mike Lee

EY Global Wealth & Asset Management Leader

Spirited leader for wealth and asset management. Champion for change. Driven to produce better outcomes and simplify the complex. Passionate about family, friends and sports.

Luca Russignan

EY Global Insurance Knowledge Leader

Experienced insurance professional focused on long-term trends in the life and non-life insurance sectors. Passionate proponent of new technologies. Listener. Traveler.

3 minute read 20 May 2019

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Given the lack of consumer trust in financial services, firms must rethink how they create and deliver products and services.

Recently, EY hosted a session around the NextWave of Financial Well-Being at its Innovation Realized event in Boston. During the session, we gathered a group of thought leaders from various industries to discuss the future of health and financial well-being.

To spark the discussion, we shared EY’s recent NextWave research that found 83% of US customers rate their financial health as either excellent, very good, or good — a stark contrast to the highest consumer debt rates and lowest savings rates on record. Given the lack of consumer trust in financial services and fragmented product offerings that don’t deliver alpha, firms need to change the way they create and deliver consumer products and services.

We believe a concept that is key to developing future services that focus on financial wellness is hyper-personalization. Supported by a rich array of data and analytics, hyper-personalized interactions involve nudging, visualization and incentive strategies to help customers maximize their lifetime financial well-being in every micro-moment.

To deliver hyper-personalized experiences, the financial services industry needs to shift its focus away from individual products and toward propositions their customers truly value. Unbundling products and re-bundling them as holistic offerings could help firms meet the needs of their customers in every micro-moment.

Rebundling should deliver a tailored experience focused on three key financial needs:

  1. Navigation: helping customers identify the best propositions to meet their needs.
  2. Concierge: helping customers access the right offerings.
  3. Therapy: helping customers resolve unexpected events and life challenges.

This rebundling strategy requires firms to rethink their current revenue models.

Unbundling products and re-bundling them as holistic offerings could help firms meet the needs of their customers in every micro-moment.

Looking to the NextWave of revenue models

EY’s NextWave research shows that many US consumers are willing to pay for subscriptions, value bundles and benefits, including price certainty and convenient access to services. Subscription models can help consumers access the services and guidance they need during key life events that have major financial implications.

Fixed-fee models are also attractive as they offer clients greater flexibility in terms of the range of services available and the frequency at which they decide to use them.

These alternative revenue models will create new profits pool for firms, away from product revenues and toward users’ revenues. This is especially important at a time when most major industry profit pools are shrinking.

To modernize their revenue models, firms need to consider how to leverage their competitive advantages to create unique bundles and evaluate whether they want to own a platform in the future, be part of a platform or contribute by being a product developer.

The hour glass model: Will your firm sit at the top or the bottom?

Changes in revenue models are driven largely by the increasing polarization of services — or the divide between tailored offerings that help individuals make their own financial decisions and more commoditized offerings of curated choices.

The old pyramid model (high-margin, low-volume products at the top and low-margin, high-volume products at the bottom) is rapidly disappearing. A new hour-glass model is emerging where you either compete on differentiation at the top and offer concierge services with a human touch, or focus on a platform play at the bottom focused on ease-of-use and accessibility.

Firms at the top of the hourglass will be expected to provide highly customized and value-focused services. The upper end of the hour glass requires the ability to address increased complexity and provide holistic expertise across an array of services around saving, spending, investing, borrowing and protecting. To truly establish trust, firms must demonstrate to clients that they are doing right by them in every micro-moment.

Firms at the bottom of the hourglass need to establish trust by demonstrating that they are protecting clients’ data and using it to better understand their needs and preferences. This is where we predict big tech players could truly begin to win over financial services clients, as these companies have unprecedented expertise in leveraging data to optimize client experience.

Different financial service players will adopt different strategies. We expect banks to be more exposed to the tech disruption risk, while insurers are relatively more protected. This will mean a different evolutionary path, though the end game will likely be the same: the emergence of trust-based “personal financial operating systems.”

A new hour-glass model is emerging where you either compete on differentiation at the top and offer concierge services with a human touch, or focus on a platform play at the bottom focused on ease-of-use and accessibility.
Mike Lee
EY Global Wealth & Asset Management Leader

Trust as a strategy

According to the global Edelman Trust Barometer, trust toward the financial services industry suffered the single largest fall among all industries last year.

It is imperative that boards and their C-suite begin to formulate a strategy around trust. Two important elements they must consider are trust as it relates to conduct and culture (e.g., accountability regulations such as those in the UK, Australia, Singapore and Hong Kong), and trust as it relates to data (e.g., GDPR).

EY’s NextWave research analyzed the multidimensional aspects of trust, including expectations around customization of offerings, price transparency, regulatory concerns and value-added services such as identity protection and discretion of personal data. The research suggests that shifting trust dynamics will reshape the US financial landscape and prompt the movement of at least $11.3t in assets during the next five years.

Given that trust has the single largest impact on customer demand, the time is now for firms to rethink how they deliver products and services, including their revenue models.

They must go beyond simply providing transparency around pricing and start to consider offering deeper insights into their bottom line. This would help clients understand how their business operates, why they charge what they charge and what the value for the money is.

Summary

Firms must adopt new revenue and service models — along with building a strategy around trust — in order to meet evolving customer needs.

About this article

Authors

Mike Lee

EY Global Wealth & Asset Management Leader

Spirited leader for wealth and asset management. Champion for change. Driven to produce better outcomes and simplify the complex. Passionate about family, friends and sports.

Luca Russignan

EY Global Insurance Knowledge Leader

Experienced insurance professional focused on long-term trends in the life and non-life insurance sectors. Passionate proponent of new technologies. Listener. Traveler.