Financial services firms must evolve their value proposition to survive and thrive for the long term. Consumers and high-net-worth individuals need support not just with financial needs, but on a wide range of personal and family-related objectives. Business owners need help not just with banking but with strategy, operational, and HR questions. Firms that fail to expand their value proposition beyond the traditional realm of credit, deposits, cash management, and investments risk being superseded by emerging competitors.
The threat to financial providers is not merely some academic risk on the distant horizon. It is immediate, and recognized by leaders all across the industry. Consider for example that:
- The proportion of banking executives observing significant competition from “Digital Giant” firms has risen 12 points over the past year
- The share of clients using non-traditional payments methods has risen 20 points in the past 5 years
- 57% of consumers have worked with a fintech in the past 6 months, while 54% of CFOs would consider a fintech for future payments needs their firm might have
The threat, simply put, is that non-traditional players, and non-industry players altogether, are aggressively working to take market share from legacy financial providers. Examples abound. In consumer banking, firms like Apple and Facebook are disrupting lending and payments. Within commercial banking, Shopify offers “Shopify Balance” for business customers. In wealth management, Overstock.com launched a robo advisor service in 2018. While this offering failed to take off, many other technology firms and non-traditional providers have similar designs on serving high-net-worth individuals. The trendline of financial services industry disruption by non-traditional players is clear. It raises the question for clients: why should I work with a traditional bank when my banking and non-banking needs can be serviced simultaneously by a non-traditional provider?
In response, many industry players seek to boost growth and relevance by expanding their value proposition beyond traditional financial services. The proportion of banks investing in open banking and APIs, many with the intent to expand their offerings beyond traditional industry boundaries, roughly doubled between 2019 and 2021. And 82% of financial services technology leaders state that their firms are currently partnering with fintechs, the goal of many of these partnerships being to launch fundamentally new offerings outside typical financial services.
But confidence remains low that these investments will succeed. In a recent poll of financial services leaders, close to half indicated that they are not confident in their ability to “evolve products to meet changing customer needs” and “explore partnerships/ecosystems with other companies.”
However, some providers are succeeding in evolving their offerings and value proposition beyond financial services, becoming indispensable partners to their clients in the process. They are building digital ecosystems that intersect with platforms where clients shop, socialize and conduct business. They are helping clients meet needs that range from healthcare, to marketing, to government relations, to talent management.
A review of these examples reveals eight key success factors that enable firms to expand their value proposition beyond traditional financial services. None of these are necessarily easy to execute on. They involve shifts in technology, ways of working, and cultural norms. And yet proof points from successful firms exist all over the industry. Specifically, leaders at firms successfully expanding beyond financial services:
- Challenge their own assumptions about the drivers of success in financial services. Long-held beliefs about how to serve clients are openly debated and abandoned in favor of new ideas when needed
- Focus voice-of-the-customer efforts not on traditional metrics like client satisfaction and NPS, but instead on understanding the customer’s desired outcome and “job to be done.” Identifying customer jobs-to-be-done reveals dramatically new opportunities to engage clients that traditional voice of the customer exercises cannot detect
- Develop tangible criteria to evaluate partner companies to help build the new value proposition. These criteria make partner evaluation more systematic and enable the firm to gauge partner fit across areas like technology competencies, product quality, and cultural fit. In some cases, this means prioritizing partner companies that the firm has previously worked with who are a known quantity
- Train frontline staff to develop hard and soft competencies to engage clients in areas beyond traditional financial services. Of all the success levers, this is among the most difficult. Frontline associates must embrace new approaches to surface non-banking needs and then construct relevant solutions. Training staff and helping them embrace competencies that were never previously part of their job description is difficult, as is aligning incentives to reinforce behavioral change
- Effectively integrate partner company technologies and systems with their own to deliver a seamless client experience. As part of this, they thoughtfully determine whether their own firm or the partner company should be the face to the customer when rolling out beyond-financial services offerings. This should also be highlighted as one of the more difficult challenges. One industry leader Gartner supports likens a typical bank’s technology infrastructure to a map of the London Underground, with layers of legacy systems. Many fintech firms are comparatively newer with less technology history. These differences are among many factors that complicate systems integration
- Unlock the insights generated through these new offerings. The data and benchmarks generated through non-banking services can help consumers, business owners, and high-net-worth individuals achieve a wide array of objectives outside traditional banking activities
- Position themselves as a partner of choice for fintechs by emphasizing the two-way value of the relationship and the benefits the technology firm can hope to achieve via partnership
- And finally, establish ownership of the beyond-financial services value proposition. This can be in the form of centralized or line-of-business-specific governance models. Expanding beyond financial services represents a significant strategic shift for many firms and accountability is crucial to improve the odds of success
As noted above, there should be no illusions that these steps are easy. Just getting stakeholder buy-in to explore a new value proposition can be a tremendous battle, to say nothing of the steps listed above. At Gartner we have the greatest respect for leaders who are piloting their firms on this journey.
And that is also why our experts are here to help. You can find numerous resources on our web site to help your firm along this journey, including resources to help build required new skillsets and integrate acquisitions that might be necessary to adopt this new strategy. For more information, please schedule an inquiry with our experts to discuss how Gartner can help build your proposition beyond financial services to achieve growth and transformation.