Elina Mattila, Executive Director at Mobey Forum
Earlier this week, futurists and innovators from across financial services industry gathered at Mobey Day Toronto to explore the social, economic and technological forces shaping a new generation of banking consumers. Elina Mattila, Executive Director at Mobey Forum, recaps the key themes.
Much of the financial services industry is built on the premise that tomorrow will be better than today. Share prices will rise. The value of my house will increase. Savings will grow. The last (lost?) decade has shown that this isn’t always true. For perhaps the first time, the idea that the future will be better is under serious and sustained threat. How the industry should adjust was a key theme running through Mobey Day’s discussion this year.
As Johannes Suikkanen, co-founder of growth strategy agency, Gemic, noted, the abandoned homes, unpaid bills and lost savings of the financial crisis have left an indelible mark on a generation of consumers. Home-ownership has decreased globally, credit card use is declining, and money is more commonly spent now, rather than saved for later.
Broader factors are also at play. Research suggests that millennials will be the first generation in history to earn less than their parents.1 The rise of the gig economy is disrupting traditional job prospects, work patterns and career paths (Jan Lukas Wolf from Sensibill highlighted that most workers in the US will be self-employed in less than 10 years). Despite an aversion to credit, younger consumers hold up to five times more debt, with school fees accounting for the majority.
Suikkanen argued that this means banks must truly evaluate the value they deliver in this changing world. Even the most fundamental assumptions need to be challenged: do consumers even care about their finances anymore?
Banks. Why should I care?
Mario Brkic from BeeOne thinks not. In Europe and North America, for example, the majority of a bank’s customers have enough money to meet their basic needs and enjoy a few treats along the way. They only ever truly engage with their bank in exceptional circumstances.
The idea that we don’t care about our finances is counterintuitive. Hot new fintech start-ups and challenger banks are racing to develop apps providing evermore detailed analytics. But to make an impact and deliver real value, Brkic argues that banks need to take a step back and get better at delivering simple services that make a big difference.
Take overdraft charges. A service that alerts the consumer when they are about to go overdrawn and comes up with a solution (such as transferring money from a savings account, or temporarily extending a planned overdraft) is useful because it instantly solves a problem before it arises. For those living pay check to pay check, an avoided overdraft charge is more immediately beneficial than knowing that 10% of income is spent on dining out.
Ranjit Sarai, from Canadian challenger bank Stack, agreed. Financial services need to change with the times. Consumers are apathetic because many financial products, such as mortgages and savings accounts, are becoming irrelevant to their circumstances or requirements. Indeed, 59% of millennials do not feel that financial products are aimed at them.2
To re-engage this generation, banks need to get creative. Streaming sites such as Netflix and Spotify promote access over ownership, and ride-sharing and room-renting apps have popularised the idea of a ‘sharing economy’.
If banks are smart, these trends can be easily translated to financial services.
For example, younger consumers are wary of anything that is labelled as an ‘investment’. Yet it is the same consumers who are most comfortable with crowd-funding and peer-to-peer lending, precisely because they closely resemble the shared, social model prevalent across other sectors.3
Banks don’t need to reinvent the wheel, just realign it.
Meet the new bank. Same as the old bank
Of course, the only problem is that designing and developing simple and relevant services is difficult. Otherwise, everybody would be doing it.
Consider the overdraft service. As Brkic explained, the artificial intelligence (AI) required to successfully execute this ‘simple’ service is hugely sophisticated. The service needs to know you are approaching zero on your account. It needs to calculate how much it expects you to spend before your next pay check. It needs to know how much you can afford to transfer from your savings accounts. And so on.
The good news is that the rate of technological advancement is increasing. Ben Hammersley, the renowned futurist, thinks that we initially overestimate the potential of a new technology, only to then underestimate its subsequent impact. According to Gartner’s hype cycle, we have already reached the peak for AI.4 Going by Hammersley’s thinking, therefore, as AI matures, its potential application in financial services could yet outstrip even our wildest expectations.
Equipped with ever more powerful tools, banks must be careful to not contract what Hammersley calls engineers’ disease. Most engineers are experts in one field – engineering. This technical expertise does not necessarily translate to other areas such as human communication. The problem is, some engineers think it does.
Advanced algorithms that promote generic, impersonal user experiences should be avoided. To immunise against engineers’ disease, Hammersley contends that inherently human interactions, such as customer service chatbots, should not be left solely in the hands of engineers.
This is particularly important when connecting to younger consumers who increasingly value experience, personalisation and authenticity above blind brand loyalty. Banks who can blend advanced tech with old-school customer service will hold significant advantages.
Another trap that banks must avoid is making simplistic generalisations about the habits of different generations. Take the assertion that millennials are impulsive and spendthrift. This is not a new complaint. Over 2,000 years ago Horace, the Roman poet, lamented that “the youth…do not foresee what is useful, squandering…money”.
Subscribing to simplification at the expense of nuance is hugely counter-productive for banks, and will alienate both existing and potential customers.
That said, banks cannot ignore the fundamental shifts in consumer behaviours and expectations, and carry on as they always have. The term ‘millennial’ is perhaps better described as a mindset than a demographic. By collaborating to understand the complex and connected socio-economic reasons behind the push for more utilitarian, social and customer-centric services, banks can adapt to deliver value that spans any generation gap.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).
As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.
Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.
Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.
“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.
Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”
It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak
Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic
A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.
A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.
The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).
The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive
The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.
Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”
The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.
As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.
From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.
Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/
Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.
“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”
New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery
· Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs
· Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success
· Allica Bank has launched a programme of free workshops to expand on the findings and support business owners
Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.
The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were:
Rule 1: SMEs should regularly train staff
Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.
Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy.
Rule 2: SMEs need to focus on innovation and technology
Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities.
Rule 3: Small business must have a formal, long-term vision
Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision.
Rule 4: SMEs should broaden their customer reach and find new markets
Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success.
Rule 5: SMEs need to develop reinvestment plans
22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%).
Rule 6: SMEs should engage with local business organisations and networks
Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs).
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.
“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.
“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.
“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”
The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate...
Workforce Diversity Matters To Our ESG Evaluation
We believe the limited representation of Black voices in key decision-making processes prevents companies from reaping the benefits of a...
Blackline reveals CEO succession plan
By President & COO Marc Huffman appointed CEO as of Jan. 1st, 2021; Founder Therese Tucker to serve as executive...
From furlough to returning to work – employees are feeling insecure in their future
New data looking into 6,273 employees, commissioned by Perkbox, the employee experience platform, has revealed the considerable impacts of the...
How mortgage regulations are changing globally
By Globalaw members Oliver Foerster, Partner @ Huth Dietrich Hahn, Roberto Sparano, Partner @ Quorum Legal ,Paul Tully, Managing Director and Partner...
Return to work: Flexibility, preparation and communication are key
By Matt Weston, Managing Director, Robert Half UK As lockdown restrictions ease for the foreseeable future, conversations across the business...
How sustainable AI improves the triple bottom line
An investment in green AI enables financial services firms to align people, profit, and planet By Nick Dale, EVP business...
The impact and implications of Covid-19 on financial reporting
By Mark Billington, Regional Director, Greater China & South-East Asia, ICAEW The economic consequences of Covid-19 have been unprecedented, affecting...
Contis enters RBS Capability and Innovation Fund bid seeking £35 million for disruptive SME growth strategy
Leading payments provider, Contis, has applied for two grants from the RBS & BCR Alternative Remedies Package, totalling £35 million. Unlike most applicants who...
Four years of digital transformation in four weeks: UK lockdown puts pressure on brands to digitally deliver
Nearly a third (32%) of consumers would switch providers if a brand’s website is unavailable for more than 24 hours...