6th Annual Summer Kickoff Mixer July 14 at SPACES, Toronto

McKinsey Global Banking: Revenue pools moving to customer-ownership with embedded digital financial services

McKinsey & Company | Dec 1, 2021

McKinsey customer ownership and embedded financial services - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial services

The Great Divergence:  2021 Global Banking Review excerpt:

Future-proof business models

In a world that continually surprises, we hesitate to talk about a “future-proof” business. Many companies that thought they were ready for anything in 2019 are frantically reinventing themselves—or disappearing. Nonetheless, the concept is useful: What does it take to build a bank that is impervious to disruption as we understand it today?

Payments can serve as an example. Fiserv, Global Payments, Klarna, and Square are very different and operate in different parts of the payments value chain, but they all have thrived in a business in which most banks have been struggling to create value. Their business model is capital-light, focused on sales growth in the most relevant and attractive revenue pools and with a strong investment in technology and scalable and integrated systems. Banks, on the other end, have focused on the debtor-side interfaces where value creation has been limited and revenue sources are under pressure—for example, current accounts and cross-border payments.

See:  65% of Global banking executives see branch-based models dead in 5 years

Overall, specialized financial-services providers—in payments, consumer finance, or wealth management—are generating higher ROEs and valuation multiples than most global universal banks. Some fintechs are going from a rough sketch to billion-dollar valuation in a few years. And there are indeed some banks among the institutions diverging from the pack. What do these top performers have that others can build, acquire, or access through partnerships to deliver a higher shareholder value? Our analysis points to three common elements that make a future-proof business model:

1. Customer ownership with embedded digital financial services

Companies like Amazon, Apple, Google, Netflix, and Spotify have taken existing services and transformed them into digital experiences that are now embedded in customers’ daily lives. Leading fintechs, specialists, and banks are replicating this model in financial services, turning products into features to meet customer needs and keep them engaged. The existing, underlying elements are still there—the checking account, the personal loan, or the POS terminal—but they are less visible, a seamless part of a digital experience that goes beyond banking.

Successful financial-services providers take three steps to position their business for this shift. First, they attract customers by solving very specific yet relevant needs. Examples include Alipay and Klarna, which make shopping and cash management easier and convenient for small businesses through quick and simple onboarding, transparent pricing, new POS terminal features, and buy-now-pay-later checkout solutions.

See:  Canadien blooming. The fertile “Valley” for finance innovation FLOW: OB, CAN Trends, Beyond OB: BaaS + Embedded Finance, tunl

Second, top performers bring customers into an ecosystem, connecting them with other services and building a dynamic and distinctive customer experience. For example, Square’s core offering is a payments service, but from there it developed comprehensive value-added services for sectors such as restaurants.

The third step is providing customers with personalized analytical insights. This increases customer engagement and, eventually, advocacy through word of mouth and social media. And in a virtuous cycle, it tells the bank or fintech more about customer behaviors and needs. The Canadian bank RBC’s AI-powered financial assistant app NOMI provides users with cash flow forecasts that take into account loan installments and subscription services, and applies deep learning techniques to customer transaction behaviors.

2. Efficient economic model that fosters growth beyond the balance sheet

Financial institutions with higher valuations tend to have a 40 to 60 percent lower cost to serve than the average universal bank and four times greater revenue growth. Higher revenues and low costs lead to more value, of course, but a deeper analysis of these leading financial institutions also shows that 55 to 70 percent of their revenues come from origination and distribution, compared with 40 to 50 percent for an average universal bank, and they leverage digital channels to interact with customers two to three times as frequently as the average bank (Exhibit 6).

Continue to the full article --> here


NCFA Jan 2018 resize - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial services The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial servicesFF Logo 400 v3 - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial servicescommunity social impact - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial services

Support NCFA by Following us on Twitter!






NCFA Sign up for our newsletter - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial services



Not to be missed! Registration NOW OPEN!

Help us kickoff the Summer in style


NCFA Summer Kickoff Jul 14 2022 800 - McKinsey Global Banking:  Revenue pools moving to customer-ownership with embedded digital financial services




 

Leave a Reply

Your email address will not be published. Required fields are marked *