The consumer banking business remains fertile territory for disruptive, innovative business models – whether delivered by banks or a disruptive new form of competition.
Is it possible to make the competition irrelevant? This is one of the tenets of the well known “Blue Ocean Strategy” concept published by Harvard Business School Press in 2005, before the financial crisis. While there’s been much talk of the need for innovation in financial services since the crisis began and as the imposition of onerous new regulations has hurt bank profitability, there hasn’t been much talk of the Blue Ocean concept of creating demand and focusing on noncustomers. Yet, it seems to me that this concept provides a great point from which to consider how best to build value for which consumers might be willing to pay. After all, this is at the heart of the innovation conversation in banking today.
How do you define a “noncustomer”? It could be the unbanked, but I think it’s actually a much larger segment of the consumer population. Suppose we consider a noncustomer to be anyone who isn’t actively engaged in managing his or her financial life. This person may have bank accounts, but really any provider will do.
This is a big group. A survey conducted earlier this year by First Data Corporation and Market Strategies International revealed that only 45% of consumers say that they actively manage their cash flow. What about the other 55% of consumers? What will it take to engage these consumers in the process of more actively managing their money in the hopes of maximizing their personal financial performance?
Granted, there are consumers who don’t want to manage their own money and will pay someone to do that for them. But that’s a small fraction of this group. For the rest, there have been only a handful of new value propositions strong enough to convert some people from inactive to more active financial managers, including PNC’s Virtual Wallet andIntuit’s Mint.com. While these products have been successful, there’s still a lot of room for innovation on this front. WillBankSimple also make inroads into creating new demand? It’s hard to say until we see what the company does and how different its products really are. Will mobile financial technologies spur consumers who are not actively managing their finances to do so? This also remains to be seen.
One thing is clear: the consumer banking business is fertile territory for disruptive, innovative business models based on factors that are highly valued by consumers, including simplicity, personalization, intelligent tools, and objective advice. With 55% of consumers not actively managing their finances, perhaps it really doesn’t matter what your competition is doing because, whatever it is, it isn’t working so well.