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.”